Why real-time economic data need to be treated with caution

The Economist: “The global downturn of 2020 is probably the most quantified on record. Economists, firms and statisticians seeking to gauge the depth of the collapse in economic activity and the pace of the recovery have seized upon a new dashboard of previously obscure indicators. Investors eagerly await the release of mobility statistics from tech companies such as Apple or Google, or restaurant-booking data from OpenTable, in a manner once reserved for official inflation and unemployment estimates. Central bankers pepper their speeches with novel barometers of consumer spending. Investment-bank analysts and journalists tout hot new measures of economic activity in the way that hipsters discuss the latest bands. Those who prefer to wait for official measures are regarded as being like fans of u2, a sanctimonious Irish rock group: stuck behind the curve as the rest of the world has moved on.

The main attraction of real-time data to policymakers and investors alike is timeliness. Whereas official, so-called hard data, such as inflation, employment or output measures, tend to be released with a lag of several weeks, or even months, real-time data, as the name suggests, can offer a window on today’s economic conditions. The depth of the downturns induced by covid-19 has put a premium on swift intelligence. The case for hard data has always been their quality, but this has suffered greatly during the pandemic. Compilers of official labour-market figures have struggled to account for furlough schemes and the like, and have plastered their releases with warnings about unusually high levels of uncertainty. Filling in statisticians’ forms has probably fallen to the bottom of firms’ to-do lists, reducing the accuracy of official output measures….

The value of real-time measures will be tested once the swings in economic activity approach a more normal magnitude. Mobility figures for March and April did predict the scale of the collapse in gdp, but that could have been estimated just as easily by stepping outside and looking around (at least in the places where that sort of thing was allowed during lockdown). Forecasters in rich countries are more used to quibbling over whether economies will grow at an annual rate of 2% or 3% than whether output will shrink by 20% or 30% in a quarter. Real-time measures have disappointed before. Immediately after Britain’s vote to leave the European Union in 2016, for instance, the indicators then watched by economists pointed to a sharp slowdown. It never came.

Real-time data, when used with care, have been a helpful supplement to official measures so far this year. With any luck the best of the new indicators will help official statisticians improve the quality and timeliness of their own figures. But, much like u2, the official measures have been around for a long time thanks to their tried and tested formula—and they are likely to stick around for a long time to come….(More)”.