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Economic recovery at a crossroads

November 18, 2020

graph of New York Federal Reserve Weekly Economic Index (WEI) November 2008 - 2020

Equity markets rose to fresh records last week on optimism over two coronavirus vaccines, but the good news was shadowed by record numbers of positive U.S. COVID-19 cases on Friday and renewed fears over a double-dip recession. The dynamics of the economy are shifting at a rapid pace, with a record decline in growth for Q2 followed by record rebound in Q3.

As the pandemic continues and local governments assess their plans for reopening economies, observers require more high-frequency data points than the quarterly GDP report to monitor inflections. The New York Federal Reserve Bank understood this challenge, and in March of 2020 created the Weekly Economic Index (WEI), an index of ten indicators of real economic activity (consumer behavior, labor markets, production, etc.), scaled to align GDP growth from a year ago. The bank was able to backdate the data to the financial crisis to give context to the current period.

Before the pandemic, growth was tracking to roughly 2%. That quickly reversed as the lockdown was initiated and the index declined to -11.4% by April. We have seen steady upward progress since then, though the most recent reading of -2.7% shows we are not out of the woods yet. Recent data on mobility, restaurant reservations and small business hiring have turned lower as positive COVID-19 cases, economic restrictions and consumer nervousness have increased. This data is crucial to monitor; the market can withstand a choppy recovery, but is not priced for a widespread lockdown.

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