Thoughts From The Divide – Alternative Data
“Less familiar sources of data can provide an informative signal”
While many market spectators may feel a sense of nausea trying to keep up with the whirling dervish of government regulations, Fed facilities, and the ongoing state of US hospitals amid the CV-19 spread, they should take some solace knowing that they are not alone. Even the Fed is looking beyond their usual data “toolkit” for clarity. Case in point, the New York Fed released a new Weekly Economic Index (WEI) last week, with the goal of using more timely data to circumvent the usual “considerable lag” of monthly and quarterly data. In the accompanying research note, they remark that, “when the economy hits sudden headwinds, like the COVID-19 pandemic, conditions can evolve rapidly” and ask, “How can we monitor the high-frequency evolution of the economy in ‘real time’?”. Their answer is to use weekly data based on “real activity” and apply some transformations to arrive at an index roughly scaled to GDP. They “may incorporate additional series to refine the index in the coming weeks”, but the current read is dour, with the index sitting at “a level unseen since 2008”.
“Just the Tip of the Iceberg”
Among the inputs used in the WEI is Initial Unemployment Claims, which jumped from less than a quarter million to 6.6 million over the course of two weeks. However, according to an article from Business Insider, the exact numbers are still unknown as many states’ systems were overwhelmed by the surge in claims, crashing government websites. With Initial Claims therefore not acting as a ‘clean’ read on the economy, we too have turned to “alternative data”. Homebase, “an employment management solution for local businesses” is “in a unique position to see this impact [on small businesses] happen in real-time” and has made some of their data publicly available. While it would be a mistake to take their data as representative of all of the US and all parts of the economy, the data is less than rosy and shows a roughly two-thirds reduction in hourly employees working.
“Watch what the Chinese Government Does”
Finally, as the world looks to China for signs of hope that CV-19 can be effectively contained and the economic damage repaired, there is “considerable and persistent doubt about the official statistics”. As an article from the BBC explains, “there is growing concern that China is not being entirely honest about the extent of its infections and deaths”. John Hempton appears to agree with the skepticism, writing in his Bronte Capital blog, “Believe your eyes and common sense over Chinese statistics”. To that end, there are once again some interesting and relevant alternative data worth watching. First, as Bloomberg writes, mobile subscriptions in China fell by more than 21 million in January and February. The article points out that “part of the drop could be caused by migrant workers” and assured readers that though the drop “is unusual, the total is small relative to total wireless subscriptions.” Second, a succinct note from Visual Capitalist describes how emissions readings over China indicate that “social and economic activities are starting to pick back up in March”. Returning to the BBC article, “Whether or not the data it’s providing is accurate, it does look like China is starting to emerge from the worst of this crisis”, but things are still far from business as usual.
