This Weekly Economic Index (WEI) ended March at -6.8% and has subsequently dropped to -11.6% as of the last week of April. It is important to note that, by convention, economic data is usually expressed as an annualized rate. The first quarter’s 4.8% decline in GDP does not mean that the size of the economy fell by 4.8%, but rather that the pace of activity in the first quarter, if maintained for a full year, would equate to a 4.8% contraction. The WEI follows the same methodology. The last reading of -11.6% indicates a pace of activity, not a period-to-period change. In periods of normal economic fluctuation, this is a distinction without a real difference, but given the volatility of economic data at present, the annualization methodology can be misleading.
Economies don’t normally fluctuate to this degree. Quarterly economic growth (again, at an annual rate) since 1947 has averaged +3.2%, with a standard deviation of 3.8%. Or, in English, about two-thirds of the time GDP growth falls within a range of -0.7% to +7.0% (the shaded portion on the nearby distribution graph). We will clearly be living in the tails of this distribution for the next few quarters, both on the downside and the upside.