Key Points

  • COVID-19-relevant leading indicators are painting a bleak economic picture.

  • Murkiness in the outlook has resulted in an incredibly wide (and dour) outlook for second quarter real GDP.

  • Beyond the obvious short-term implications of COVID-19 and its economic impact, there are longer-term secular changes likely coming.

I participated in a Reuters Twitter Chat for an hour last week—one of the fastest-paced hours I’ve ever spent on Twitter. One of the initially-posted questions was whether we felt the COVID-19-related contraction in the economy would ultimately be declared a recession or a depression. I replied that we may need a new descriptor this time—perhaps a “screeching halt” (by government mandate or “fiat”). Even though we likely aren’t yet in the teeth of hit to the economy, the data over the past week have been epically horrific.

Woe is WEI

The New York Fed recently created a “Weekly Economic Index” (WEI), using 10 leading indicators specifically geared toward analyzing the current COVID-19 economy in real time:

  • Redbook Research: same-store retail sales average
  • Unemployment insurance: initial claims, state programs
  • American Staffing Association Staffing Index
  • Rasmussen Consumer Index
  • Raw steel production
  • Electric utility output: Unites States ex. Hawaii and Alaska
  • U.S. fuel sales to end users
  • Continuing unemployment insurance claims
  • Railroad traffic
  • Federal taxes withheld

As you can see in the chart below, the WEI has plunged to a level significantly worse than what was experienced during the Global Financial Crisis (GFC).

WEI Plunged to GFC Territory

Source: Charles Schwab, as of 3/28/2020. Daniel Lewis, Karel Mertens, and Jim Stock, “Monitoring Real Activity in Real Time: The Weekly Economic Index,” Federal Reserve Bank of New York Liberty Street Economics.