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~by Dr. Larry DeBoer, Purdue University
Forecasts? Don’t talk about forecasts. You kidding me? I just want to know what’s happening now!
With apologies to Jim Mora, that’s our problem. What’s happening in our economy, right now?
In the first week of March, we’d have answered that gross domestic product above inflation grew 2.4 percent at an annual rate in the fourth quarter of 2019, and the unemployment rate was 3.5 percent in February 2020. In early March, we could be confident that real growth was in the neighborhood of 2 percent per year, where it had been for about 10 years, and the unemployment rate was near its 50-year low, as it had been for the previous year.
Then came the second week of March, and the pandemic made all those numbers obsolete. We knew the economy was shrinking, and the unemployment rate was rising. But we didn’t know how much. The March unemployment rate wouldn’t be reported until the first Friday in April. But that survey was taken in the second week in March, as the economy was just starting to shut down. April unemployment would tell the story, but that number would not be reported until the first Friday in May. We had to wait seven weeks to learn that the April unemployment rate was 14.7 percent.
It was even worse for real GDP growth. First quarter real GDP was reported at the end of April, and it was bad, a 5 percent drop. But that figure included 10 weeks of growth and only three weeks of decline. Second quarter real GDP growth would tell the true story, but it would not be reported until the end of July. That’s more than four months after we needed to know.
Second quarter “growth” was finally reported as a 31.7 percent decline. That needed explaining. It was an annual rate. That’s the decline if the quarter’s activity had continued for a full year. Usually, it’s useful to report it that way. In the fourth quarter, 2.4 percent growth showed that the economy was plodding along at the same rate as most years of the previous decade. The decline for the second quarter alone was 9.1 percent—still terrible. But we knew the economy would not decline that much for a whole year.
In fact, we’re pretty sure the economy bottomed out in spring. The unemployment rate has been falling, to 8.4% as of August. So the question remains: What’s happening in our economy, right now? How fast are we growing? How far have we recovered? We won’t know September unemployment until the first Friday in October. We won’t know third quarter GDP until the last week of October.
What we need is “high frequency” data, daily or weekly measures of the economy, available right away. Fortunately, the New York Federal Reserve has ridden to our rescue. It has created a Weekly Economic Index by averaging 10 weekly indicators, available one week later. Two of those indicators have been in the news, initial and continuing claims for unemployment benefits each week. But there are other indicators, from trade groups and economic consultants, about weekly retail sales, steel production, railroad traffic, tax withholdings, consumer confidence, and others. You can see the index and the list at the New York Fed’s website. Just search “weekly economic index.”
As of September 5, the weekly economic index was -4.26 percent. That means in the first week of September 2020; real GDP was about 4.3% lower than it was in early September 2019. The index was at its lowest point the week of April 25, at -11.45 percent. We’re still in a deep hole, but we’re climbing out.
Wait, back up. Will the third quarter real GDP growth rate really be released in the last week of October? Yes, on Thursday, Oct. 29, at 8:30 a.m. And yes, that’s the Thursday before election Tuesday. It will be a large positive growth rate, and I would guess that both parties are working on their spin right now.
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But don’t be spun. The economy is growing fast. But we’re still way below where we want to be. You need both sides of that story to know what’s happening in our economy, right now.