Economic Megahertz

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Today I highlight why, in this fluid era of Covid-19, it is necessary to monitor the high frequency data in formulating an opinion on the economy and on consumer behavior and sentiment. I also include current charts to show how the recent spike in the virus is impacting segments of the U.S. economy

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The financial markets have seemingly become disinterested in the traditional economic data published on a monthly basis from the likes of the Bureau of Labor Statistics, Institute for Supply Management (ISM), U.S. Census Bureau, Markit, Bureau of Economic Analysis, and the Federal Reserve.

Some data series are considered to be leading indicators, some lagging. A few reports each month are issued with a one month lag or, in terms of GDP, even look back a full quarter.

The Department of Labor's data on initial claims for unemployment are reported weekly, for the prior week, providing market participants a reasonably current picture of the labor market. Here, though, the continuing claims data are reported with a two week lag.

None of it is particularly helpful right now because the statistics are quite noisy and difficult to interpret owing to the combo of the abrupt economic shut down and the ongoing process of reopening. Declines of -50%, -75%, nearly -100% in some data in March and April soon started to snap back by +25%, or more, as business and commerce came back to life.

For economists, forecasting the data has become a dart throwing expedition. It's no wonder, then, that the Citigroup Economic Surprise Index has spiked through the roof!

Not only is the data difficult to forecast right now, when it is released it's quite stale.

The Spike

The situation with Covid-19 is extremely fluid. The virus seemed to be under control until mid-June when the number of new daily cases began to spike higher. People started to move around again in late-May and many stopped following the CDC Guidelines on social distancing and wearing masks. From June 14 to July 8, the new daily cases jumped exponentially from 21k to 62k.

State and local officials began delay the reopening process. Some back-tracked by re-closing some sectors (gyms, bars, taverns, theaters) and restricting the size of gatherings and the capacity in restaurants. In addition, residents in the hot-spot states (FL, TX, CA, AZ) took it upon themselves to hunker down again. Some businesses have had to shut down again, and corporate management had to ask employees to work from home.

Given the fluidity of the situation, market participants can't be expected to patiently wait for the traditional data to be released. Even when it is updated on a monthly basis, it doesn't capture real-time developments.

High Frequency Data

This has exposed the need for readily available high frequency data, and many firms have risen to the occasion. Some, like Open Table, were already compiling industry specific statistics. Others, like Apple and Google, were already monitoring mobility, traffic congestion, and public transportation. Hotel occupancy rates, air travel, and conference data were all being collected.

The economic and socio impact of the pandemic has forced these data into the mainstream. It has become more presentable and available in a format economists and market participants can use to gauge how the biological concerns are impacting the economy down to the county level and on a day to day basis.

Harvard University based Opportunity Insights is one organization that has stepped up to the plate. According to their website, "our team of researchers and policy analysts work together to analyze new data and create a platform for local stakeholders to make more informed decisions."

This group has developed an Economic Tracker that includes some essential information related to the impact that Covid-19 is having on small business, jobs, consumer spending, and consumer mobility. (much of it is based on data from Affinity Solutions and Womply)

As you'll see, the recent and ongoing spike in infections has damaged the psyche of the consumer and has caused positive business trends to turn lower.

?All charts measure the % change from January 2020 levels.

Consumer Spending

This measures consumer credit card and debit card spending. Total U.S. consumer spending has retreated from -5.9% on June 22 to -9.0% on July 1. The chart below drills down to the three industries listed, all still down -34% to -50.8% from January levels and turning lower.

Here's the impact on consumer spending in the three states most impacted by the recent surge in cases of the virus. Notice the declines over the two weeks into July 1.

Entertainment & Recreation - FL, TX, CA.

Restaurant & Hotel - FL, TX, CA

Transportation Services - FL, TX, CA

??The contribution to national GDP of these three states is significant.

Florida = 5.1% Texas = 8.8% California = 14.6% account for a combined 28.5% of the GDP of the United States (as of Q4 2019 according to statista.com)

. . .

Small Businesses Open - United States

(Defined as having financial transaction activity)

Nationally, this series is down from -13.7% on June 25 to -20.2% on June 30 (vs Jan'20)

Small Businesses Open by Industry

All moving lower.

Small Businesses Open - FL, TX, CA

The trends aren't looking too good.

Small Business Revenue - United States

Revenue is down nationally from -12% in June 21 to -20.2% on June 30 (from Jan'20 levels)

Small Business Revenue - By Industry

Change in Weekly Unique Job Postings - United States

Down from +5.4% vs Jan'20 levels in week ending June 26 to -14.4% in week ending July 3.

Change in Weekly Unique Job Postings - By Industry

Leisure & Hospitality down huge.

Time Spent Outside Home - United States

Breaking trend to the downside as people hunker down again.

Time Spent At Workplace Locations - United States

June 28 down -12% from Jan'20 levels. July 3 down -57% WOW!

Time Spent at Retail and Restaurant locations - United States

Holding up, so far.

Time Spent at Transit Locations - United States

Down -30% from Jan'20 - looks to be rolling over.

So where is everyone going? To the Parks - up +86% from Jan'20 levels. This makes sense because people feel safer outside and where they can social distance.

Bottom line? The recent surge in daily new cases of the virus and the restrictions from state and local officials are slowing consumer spending, forcing small businesses to re-close or close altogether, hitting small business revenue, reducing the number of job postings, and impacting consumer behaviors.

This is just a small subset of the high frequency data available. One should also consult many other sources of this information to formulate a more accurate view on the current state of the U.S. economy and the attitude of the consumer. It's available, although one needs to search for it.

Some of this has been around for awhile. Other pandemic era high frequency data is only now being compiled. It would be helpful if some of this valuable insight would be aggregated into specific indexes. What we can count on going forward, though, is that this information will become as important as the traditional reports, if not more.

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This article is part of my LinkedIn Newsletter Series: Indicators and Insights – Perspectives on the Top Financial Market Movers with a View of What's to Come.

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This report represents the opinions of its author. It reflects market and financial information that we have obtained from third party sources; we believe it to be accurate, but we make no warranty to that effect and are not responsible for any inaccuracies in the information presented. Nothing in this report constitutes personalized investment advice to any reader or a solicitation to effect or attempt to effect transactions in securities. All investments involve risk. Past performance may not be indicative of future results. Due to various factors, including changing market conditions, the opinions set forth in this report may no longer reflect the current views of the author. The author is not an investment adviser, law firm, or accountant, and nothing in this report should be construed as investment, legal or accounting advice. Additional information is available upon request. Copyright (c) 2020. All Rights Reserved. The Mitchell Market Report,LLC