Leading economic indicators have a new rival. And they’re losing to it, big time. COVID-19 infection data have, for the moment, become the most reliable leading indicator of economic activity, anywhere. If infections go up, lockdowns ensue, and the economy tumbles. Stabilize or reduce new infections, and lockdowns are lifted, partially or completely, and presto: the economy leaps forward again. Trouble is, there are few reliable models of pandemic prediction, and a wide variety of policy responses. Where is this leading indicator headed?

Before going there, stop for a moment and think about this indicator. Typically, we have to wait a while—30 days, 60 days from the reference period, sometimes more—until we get the data that tell us what happened back then. During a pandemic, that feels like an eternity. COVID-19 data is a modern miracle—we get refreshed global data at least every 20 minutes, in key countries, broken down into sub-regions. That’s about as real-time as the planet has ever seen. 

The main effect on the economy is the speed of policy decisions. Infection rates have been the key trigger for lockdown orders, from the initial outbreak in China clear through countries that are still dealing with first-wave outbreaks. These have shown up in shocking plunges in economic data, far beyond imagination. Activity levels down 80% or more in the auto industry, 75% for air carriers, retail shutdowns and the impacts all up the supply chain were telegraphed perfectly by the COVID-19 data, although that didn’t in any way reduce the shock.

Thankfully, the data are not a one-way wonder. The pandemic information seems to be as good on the upside as on the way down … so far. Flattening of the curve and the measured resumption of activity had an instant impact on China’s April data, and while we’re still plumbing the economic depths during May, there was enough of a return to work that small but significant rebounds were achieved. If the virus data are really that good, June is looking like an all-out barnburner.

If nothing got in the way, this would be a solid start to a classic V-shaped recovery, with a return to pre-COVID-19 activity levels by year-end. Likely the most troubling threat to this happy outcome goes back, naturally, to today’s pandemic data. Second-wave infections have occurred in China, Japan and Singapore, with the worst cases now hitting the parts of the United States. The key danger here is another global growth slowdown.

The impact on the economy is highly contingent on the policy reaction. Various types of lockdown have been tried. There was the very concentrated one in Wuhan, China, which ring-fenced the outbreak region in the city and allowed the rest of the economy to continue on. The Tokyo closure shut down a huge chunk of the Japanese GDP. Others are variations on the theme, of which the full-state closures in the U.S. are the most severe. Put it all together and a third-quarter slowing of growth is likely.

That’s pretty discouraging; it feels like the economy is in for another drubbing. Not so, thus far. Stung by near-complete shutdowns, economies don’t want to go there again, and are generally trying to go with localized containment. Yet clearly, the return to a second round of more generalized U.S. statewide lockdowns is one of the world’s greatest threats to growth.

Getting beyond this requires a flattening and eventual sustained reduction of infections. Policies that get us there are the surest solution at present. Although not necessary to secure a full recovery, development of a vaccine would nail it from two standpoints: getting the infection numbers down and giving consumers and businesses the confidence to fully restore congregating and interacting. At that point, the economy would be in an irrepressible rush to get back to normal.

The bottom line?

The economy’s newest and best barometer is bouncing in a way that’s wracking the nerves. EDC Economics’ forecast anticipates a sharp rebound that morphs into a less-rapid path to normal, as second-wave infections hold back demand and production. To date, the public response to renewed outbreaks has been contained enough to keep recovery going. Failure to contain brings serious economic consequences, for which there will be fewer workable remedies—a key reason behind the swift actions that have followed second-wave outbreaks. These high stakes should ensure fast implementation of appropriate measures that speed us to better times. The alternative is grim.


This commentary is presented for informational purposes only. It’s not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.