Leading Indicators Hanging on Despite Second Wave

The US has been battling a resurgent wave of COVID-19 cases since mid-June. While this situation constitutes a downside risk to our forecast for the US economy at large, we expect that US GDP will move into recovery posture during the second half of the year.

With the latest July data points, the leading indicators were holding onto their respective rising trends, suggesting that the recent rise in case numbers and the associated pauses in reopenings across various states have not yet imperiled our expectation.

Simple Question, Tricky Answer

A common question we have been receiving of late is some version of “How many cases per day would trigger a downgrade to the forecast?”

Unfortunately, it is not that simple. There is no magic number of cases, or deaths, or number of states with problems that would trigger a downgrade to our forecast. The leading indicators and our weekly flash metrics will tell us if the recovery is in doubt. These are the purely objective, empirical anchors that, should they fade and succumb to declining trends, will tell us when COVID-19 cases numbers have reached the “critical mass” and put the recovery in jeopardy.

Latest Data Points

Accordingly, we have been particularly interested in the early-August leading indicator updates, as July bore the full brunt of the latest resurgence in cases and associated reopening complications. The results were pleasantly positive, as the following indicators built on their previously initiated rising trends:

• The ITR Leading Indicator™ (monthly data)
• The US ISM PMI (Purchasing Managers Index) (1/12 rate-of-change)
• The US OECD Leading Indicator (1/12 rate-of-change)
• The JP Morgan Global Purchasing Managers Index (1/12 rate-of-change)
• The Wilshire Total Market Cap (3/12 rate-of-change)

That list represents a mix of US and globally inclined leading indicators with varying focus on manufacturing, financial, and macroeconomic conditions. The diversity of the indicators coupled with the consistency of rise is highly encouraging, as it offers empirical rendering that the second wave (while problematic from a public health standpoint) has been insufficient to trigger a broad retrenchment in the US macroeconomic recovery.

This is hardly worth spiking the football over, but it does constitute a small victory in the overall macroeconomic struggle against COVID-19. Your following these leading indicators as a subscriber will be crucial as we navigate an uncertain third quarter that is sure to be marred with the usual economic misreporting (see ITR President Alan Beaulieu’s latest blog post on false headlines), compounded with the noise and angst of the closing stretch of an election year.

Connor Lokar
Economist