At this point in the pandemic, what becomes very important is measuring the extent of economic revival as economies across the globe look to reopen and map any impact on the spread of the virus.
Being able to measure economies is tough at the best of times but given the size of the shock and the wide extent of the dislocation, it is now especially challenging. Most economic numbers, like GDP or unemployment ,are backward looking or lagging and tend to tell us how things were rather than how they are. And indeed most of the headline grabbing economic figures are subject to subsequent material revisions.
Survey data from both businesses and individuals, such as PMIs and consumer sentiment , can be more timely, but can be heavily influenced by the psychological shock of this epidemic. For example, looking at survey data in Europe last week, it has come out materially different from market expectations in both positive and negative directions. While we are this close to the outbreak, it is likely to remain “noisy”.
Now more than ever, we need to have robust and timely measures of how we are doing.
The IMF has recognised this and highlighted how useful other indicators may be in framing a view. These can be more frequent, more timely and more robust than say GDP calculations, if perhaps a bit unconventional. Included in these indicators could be electricity consumption, traffic count, HGV journeys, metro footfalls, weekly retail sales data etc. While they do require care in interpretation, they can also provide a good picture of underlying real economic momentum – and in a timely manner.
So how are we doing?
Some indicators don’t surprise. Air travel in Europe, as we know, has basically stopped. But it has been on an upward trend in China since the beginning of April and in the US from about two weeks after that, reflecting easing of conditions. The pace in the US has especially picked up in more recent weeks.
More generally in Europe we have seen a gradual pick up in mobility, road traffic, car registrations and retail sales albeit from very depressed levels.
This higher frequency data also highlights the gap between different European countries, with a relatively more robust north and a trailing south. Traffic through toll roads in Italy and Spain, at its low point in late March, was down 80% on a year on year basis, but has recovered to being “only” 50% down. By contrast truck traffic in Germany is much stronger at just 5% below its level at the start of the year.
Electricity usage is comfortably past its low in most countries but with Italy showing the greater pace of pick up in recent weeks.
Car registrations in some countries have improved quite dramatically in recent weeks. In Spain from a level of zero at the start of April, daily car registrations are now running at a daily rate of about 4000. The average through 2019 was about 6000 on a daily basis. France also has seen some momentum here with the most recent weeks running at about 80% of last year’s level. Clearly, there is a replacement cycle and pent up demand issue, but it still represents big ticket spending by the consumer.
One of the more unusual items now being focussed on is global maritime data from the Automatic Identification System (AIS) – basically ships’ radio signals – to show how international trade is being affected by the pandemic. Analysts can see if activity is picking up, is it finished products or commodities and what are the destinations? This trade data is available daily and in real time while official statistics can be delayed by weeks.
One encouraging sign has come from looking at internet data – and this has been pretty similar across the major European countries. Since the start of May we have seen a significant uptick in the level of internet enquiries into holidays and holiday accommodation. The level is still way off what we would have seen at the start of the year but perhaps a sign of improving confidence.
This non-traditional higher frequency data can, in the view of bodies such as the IMF, complement the official statistics especially at a time when we may see disruptions to the data. In many examples the focus is on level rather than growth rate which is important because we are still so far off normal levels that percentage changes can be misleading.
The verdict on this recovery so far – it’s started but uneven across regions and sectors and certainly not V-shaped.
This article first appeared in the Sunday Business Post
Tradewinds 