Understanding Economic Data in the COVID-19 Crisis

As the country continues to deal with the COVID-19 crisis, accurate data is one of our most important tools for understanding what is happening in our country and the world. In particular, economic data can tell us a lot about how the virus and public policy response is playing out. Accurately interpreting the data is crucial so that we understand what it means.

Last year, I co-authored a book designed to help Arkansans better understand economic data. In this blog post, I will highlight a few data sources you can follow to better understanding what is happening in our country and economy.

Unlike most economic downturns, the current crisis is a largely planned economic slowdown used to encourage people to reduce contact with others. We have not seen an economic downturn like this. Even so, our conventional economic data provides a way of seeing what is happening in the world, as long as we understand what the data is telling us.

What does the stock market crash tell us?

Since Jan. 1, the S&P 500 is down about 21% through March 27. The S&P 500 is a good, broad gauge of the 500 largest publicly traded companies, and much better than the Dow Jones Industrial Average, which only covers 30 companies and is calculated strangely.

The stock market crash tells us investors are worried about the future profitability of U.S. companies. Stock prices are based on the perception of how profitable a company will be in the long run. Stock prices provide us a real-time snapshot of how the economy is doing, updated not only every day but every minute. As opposed to some of the other economic data I’ll be describing, which can take weeks or months to collect and report, the stock market gives us some information in real-time.

But stock markets can also overreact, especially in a time of great uncertainty like the present. For example, earlier in the week of March 23, the stock market was down 30%, rather than the 21% it closed out at March 27. That’s a big change in a week. Expect more big changes over the coming weeks and months. This means you can’t always depend on the stock market to tell you what is happening in the economy. It’s a noisy measurement.

And not all companies have seen their stocks decline. Zoom, a video conferencing company that many are using to stay in touch while we practice social distancing, is up 120% this year. Blue Apron, a company that delivers fresh food to be prepared at home, is up about 80% this year. Investors expect these companies to be much more profitable than they expected before the crisis hit.

It is also worth noting that stock markets are declining across the world. The U.S. is not an outlier. Stocks in Europe are down about 27% this year. Even in Japan and South Korea, which have handled the crisis relatively well, stocks are down 18% and 22% this year (all figures are through March 27). We are not alone, and not noticeably worse than any other democratic, market-based economies.

Your retirement portfolio probably looks a lot worse than it did on Jan. 1. That’s a difficult thing to see. But the overall stock market is roughly where it was in 2017, so we have not gone back to the dark ages. I recommend following the stock market as a way of seeing what is happening in the economy, but I don’t recommend checking your 401(k) balance daily.

What is the best overall measure of how the economy is doing?

Gross Domestic Product is widely viewed as the best measure of the overall economy. It is a measure of the market value of all the goods and services produced in our economy. Knowing what is happening with GDP can tell us a lot about how the economy is doing and how bad the partial shutdown of the economy has been. It’s also sometimes used to determine whether the economy is in a recession or not.

But there’s a major problem with GDP: It is only reported quarterly and takes time to compile. While the first-quarter of 2020 will be ending in a few days, we won’t have the first GDP estimate until April 29. And that is only considered an “advance” estimate, with the final estimate coming June 25. Plus, only one month of the first quarter, March, was seriously hit by the economic slowdown in the U.S.

The second-quarter is expected to be the hardest hit, but right now, we can only speculate. I’ve seen lots of estimates of how bad it will be, including the president of the St. Louis Federal Reserve saying that GDP could decline by 50%. That would be bad. The worst quarterly decline on record was in 1958, when GDP fell by 10%, also during a flu pandemic. Quarterly estimates don’t cover the Great Depression, which was much worse.

We won’t have an estimate of second-quarter GDP until July. It’s not helpful for watching what is happening in real-time.

There are economic indicators that provide some glimpse of the economy faster than GDP, and might even tell us what will happen with GDP. For example, the Conference Board produces an index that uses 10 “leading” economic indicators, such as the stock market performance and unemployment claims, to give a picture of how the economy is performing. The Conference Board releases its index monthly, and the March report is scheduled to be released on April 17.

The Federal Reserve Board’s Industrial Production Index is also released monthly and tells us how many goods the industrial sector is producing. It is narrower than GDP, since it does not include services, but it will still give us some idea of the extent of the economic downturn. The March report is scheduled for release on April 15.

How bad has the labor market been hit?

One of the most immediate impacts of the economic slowdown is that many individuals have been laid off or had their hours significantly cut back. The unemployment rate is one of the best measures of how the labor market is performing. It is released as part of the monthly Employment Situation Report from the Bureau of Labor Statistics. The unemployment rate is not a perfect measure since it only counts those looking for work as unemployed, but along with the other information in the employment report, it provides a good picture of the health of the labor market. Currently, the unemployment rate is near record lows at 3.5%, but, of course, this will be changing soon. The question is how much.

We will get a report for March on April 3. However, BLS uses a “reference week” to conduct the survey, and that reference week was March 8-14. As you may recall, that was the week before most of the U.S. began shutting down businesses and practicing social distancing. We won’t have a report for April until May 8.

How bad the unemployment rate will get is anyone’s guess. The same St. Louis Fed president that predicted GDP will decline by 50% also guessed that unemployment would hit 30%. Economists at the St. Louis Fed have produced estimates that 46% of US workers are at “high-risk” for becoming unemployed in the current crisis. These are some of the highest guesses I have seen, but remember, they are just that — guesses. We’ll have to wait for the real data to see how bad it truly is.

One measure of the labor market that is available more frequently is the new filings for unemployment insurance claims. National data are released every week, a timely measure. While this measure is not perfect, since not everyone unemployed qualifies, and not everyone eligible applies, it is useful due to how often that data is released.

On March 26, we had the release of this data for March 15-21, the first week significantly impacted by the slowdown. And it was record-breaking bad news: around 3 million Americans applied for unemployment insurance. For reference, there were fewer than 6 million total unemployed Americans before the crisis started.

The prior week, fewer than 300,000 had applied for unemployment insurance, so we had 10 times as many new unemployment claims in one week. During previous recessions, such as 1982 and 2008-2009, the weekly number never got above 700,000. Three million in one week is historic and historically bad. The next weekly report is scheduled to be released on April 2 and could be just as bad.

One of the major parts of the economic stabilization bill just passed by Congress provides support to the newly unemployed. Unemployed workers would get $600 per week from the federal government in addition to the state benefits they already qualify for, which can be as much as $451 per week in Arkansas. In a future blog post, I’ll discuss this economic stabilization bill in more detail and what it could mean for the labor market and economy.

Jeremy Horpedahl is an Assistant Professor of Economics at the University of Central Arkansas College of Business and Research Scholar at the Arkansas Center for Research in Economics.