Checking In On COVID-19 Trends
Recently, a Bespoke Investment Group constructed index, including five weekly variables, centered on mortgage purchase applications, demand for gasoline, container traffic on railroads, initial jobless claims, and weekly consumer comfort readings showed the U.S. economy likely bottomed during late March and early April.
Until last week, the Federal Reserve of New York's Weekly Economic Index (WEI) also had started to show signs of bottoming, as the FactSet chart below shows. As more states lift restrictions on businesses, we believe the New York Fed's WEI may start to turn the corner eventually. However, the economy has quite a way to go before returning to anywhere near normal. As the chart below also shows, the aggregate collection of weekly data the New York Fed uses for its WEI took a dip lower last week, only adding to the market's building frustration with a potentially slower than hoped for economic recovery.
Near real-time mobility trends from Google and Apple, have also started to play a more significant role in the short-term outlook for the economy as well as expectations for a pickup in activity. On a national level, Google mobility trends (which use anonymized phone location data to measure movement) have shown a gradual uptick in activity.
As the Federal Reserve Bank of Dallas recently noted, a key driver to the economic stop in March and April was the "physical distance of people" to slow the spread of COVID-19. Thus, the Dallas Fed created the Mobility & Engagement Index (MEI), formally known as the Social Distancing Index. The Dallas Fed's MEI aggregates seven daily mobility factors, which measures time spent away from home and trip distance.
As the chart above shows, the MEI has gradually ebbed lower since peaking in early April. Meaning, Americans are becoming more active, leaving home more often, and spending more time away from home when they venture out. Simply put, the more time consumers spend away from home, the more apt they are to spend money and add to economic activity.
But as the chart above also highlights, limited ability to go out and spend, and an abundance of caution among individuals worried about contracting COVID-19, have kept MEI levels much higher compared to pre-coronavirus levels. In our view, the MEI could provide a vital early warning sign into how consumers respond to a potential second wave of COVID-19. Thus far, the data hasn't shown a weekly rise since peaking in April. But if consumers grow more concerned about the virus and the MEI starts heading higher, we believe investors may take note, which could add to the market’s frustration about a recovery.
Importantly, mobility trends lend great insight into where consumers are going but tell you little about their spending trends. In our view, this is one of the significant limitations to mobility data. Over the coming weeks, we believe the market could grow impatient if it doesn’t see confirmation in traditional data sets that a recovery is progressing as it anticipates.
Speaking of impatience, Google's Coronavirus Search Trends tell a very interesting story at the moment. As the first Google chart below shows, "coronavirus" as a search term has fallen dramatically since peaking in March. With the summer season starting to kick into gear, America is far more concerned with checking the weather before heading outdoors than they are with checking in on the virus.
However, when Americans do check in on coronavirus topics, they are predominately centered on questions that answer when life can return to normal, as the Google table above shows. In our view, this type of information shows a degree of frustration with being locked down for several months. As a result, the relaxing of stay-at-home restrictions, a general desire by Americans to return to regular routines, and summer activities that attract gatherings have increased the risk the virus could spread. We are certainly not health experts. But based on the information above and the window into American's psyche, we believe there is fertile ground for the virus to spread over the coming weeks and months. This could have implications for our market outlook as well as our year-end projections.
Though markets could gyrate and possibly react negatively to a potential second wave of COVID-19 infections over a shorter period, there are strong dynamics in place we believe could support asset prices over time. Meaning, we believe investors should remain cautious but avoid becoming overly bearish based on worsening virus trends.
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The Federal Reserve Bank of New York WEI leverages a range of metrics, including same-store retail sales, consumer sentiment, unemployment insurance claims, temporary and contract employment, tax withholdings, steel production, fuel sales, electricity output, and railroad traffic, to offer a “real-time” gauge of U.S. economic activity.
The Dallas Fed Mobility and Engagement Index (formerly the “Social Distancing Index”) summarizes the information in seven different variables based on geolocation data collected from a large sample of mobile devices to gain insight into the economic impact of the pandemic. variables are: Fraction of devices leaving home in a day; Fraction of devices away from home for three to six hours at a fixed location; Fraction of devices away from home longer than six hours at a fixed location; An adjusted average of daytime hours spent at home; Fraction of devices taking trips longer than 16 kilometers (10 miles); Fraction of devices taking trips less than 2 kilometers (1.2 miles); and Average time spent at locations far from home.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
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