Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Institutional Perspectives

In the internet and smartphone era, both governments and private companies now have more data to measure economic activity and new sources from which to gather the data.

Read time: 3.5 minutes

 

Economists traditionally rely on government data to measure the economy. Usually governments are the only entities large enough to measure economic activity. They do so through large surveys, sending out government officials to measure things like inflation, or through official government activity like managing trade and capital flows across the national border. Even the very concept of gross domestic product (GDP) was invented by Simon Kuznets in 1937 and is heavily dependent on government data.

There are also some long-standing measurements by private organizations, for example, the Institute for Supply Management or the Conference Board. Usually, however, these venerable private institutions are using the same survey-based measurements of the economy as traditional government data. Occasionally some companies reach such scale they can produce data comparable to official government data, such as ADP, a payroll company that publishes a widely followed employment forecast.

Alternative Data Defined

In the internet and smartphone era, both governments and private companies now have more data to measure economic activity and new sources from which to gather the data. This so-called “alternative data” may be sourced from Internet searches, web scraping, remote sensors, cell phone location or application usage, satellites, and credit card transactions. There is no definitive measure of alternative data, but new technologies are offering us not only more measurements of economic activity, but also novel ways in which to measure it.

Vulnerabilities of Traditional Data

Our current health emergency exposed two vulnerabilities of traditional data.

First, the COVID-19 crisis caused an unusually fast economic recession. Since traditional economic data is usually released with a lag, the data we did have was not providing us with timely information. Consider, for example, that U.S. initial jobless claims increased around 38 million inside of a month and a half, and Norway’s unemployment rate went from 2.3% to a post-WWII high of 10.7% in only one month, according to Bloomberg. Germany reported by April 6, 2020 that 650,000 companies had applied for a worker furlough scheme, according to AFP.

Second, the main way governments measure things – by sending a government official to measure activity like inflation – is actually impossible during a pandemic. While some governments avoided this by using online surveys and phone calls, other governments like India could not even publish key indicators like inflation and wholesale prices, according to Bloomberg.

Even in the United States, government agencies like the Bureau of Labor Statistics (BLS) needed to change some of their procedures for major data releases, although they still have strong confidence that operational issues did not reduce the quality of the data. But compositional problems due to the shutdown may still plague official data even if it is collected with some confidence.

This is not to say that governments are unaware of the data predicament caused by COVID.  Some are already using more timely sources of data:

  • For some time now, the BLS has been incorporating online pricing in the consumer price index using a methodology first pioneered by State Street’s PriceStats Index.
  • The U.S. Census Bureau recently acknowledged the need for more timely data and began to release a new weekly data series on business formations and also a new weekly consumer survey.
  • INSEE, the statistical agency of France, recently converted to an all alternative-data forecast of GDP.
  • Similarly, the statistical agency of Germany, Destatis, began releasing a daily trucking-toll-mileage measure to provide more timely information about the economy.

Novel Alternative Measures

Many private companies, however, have been providing even more novel (and more timely) measures of economic activity during the crisis. Some of this information has been released publicly for free for the first time to help local governments measure social distancing. For example, Google and Apple have both released mobility indices based on cellphone search data to measure social distancing.

 

Figure 1. Apple’s Mobility Index Uses Cellphone Data to Measure Social Distancing
Asian mobility Indexes, walking activity, seven-day moving average (January 1, 2020 – May 19, 2020)

Source: Apple.

 

Similarly, Foursquare has released visitation data for different types of businesses by different demographic groups.

 

Figure 2. Foursquare’s Visitation Indexes Show U.S. Activity Levels at Various Locations During the Pandemic
(Visits to designated U.S. business and activity categories by state, seven-day moving average (January 1, 2020 – May 19, 2020)

Source: Foursquare.

 

Turning to the health of the U.S. consumer, two sources of data have been particularly interesting. First, Open Table, a restaurant online booking company, recently began publishing its data for different cities and countries. This data offers us a measure of openings at the small business hospitality level.

 

Figure 3. Open Table is Measuring the Health of the Consumer by Tracking Restaurant Reservations Globally.
Bookings through Open Table, % change (January 1, 2020 – May 19, 2020)

Source: Open Table.

 

Second, providers of credit card transaction data compile real-time consumer spending data across a variety of companies. This information allows users to measure the shift in consumer behavior during the crisis as well as overall consumption trends. An example of this data can be found on a website2 run by academics from Harvard University which shows data on consumer spending trends in different categories like groceries, healthcare, restaurants, and so forth.

Alternative data are also useful in following China. Official government data in China is still a work in progress: it may not cover all areas of the economy we are interested in and it may not be totally accurate. As such, Lord Abbett is utilizing WIND, a data provider that is dedicated to China’s financial system and economy.

Higher frequency alternative data from WIND has been instrumental in measuring the strong industrial rebound in China over the past few weeks, as seen, for example, in auto sales (see Figure 4) and transportation volumes, although the degree of consumption rebound remains an open question as other data, such as theater box office revenue, reveal. 

 

Figure 4. WIND Data Provide Insights to the Chinese Economy That Go Beyond Government Data
Auto sales (retail and wholesale), year-on-year growth (January 2019 – April 25, 2020) 

Source: WIND.

 

Some universities have also provided valuable aggregations of both public and private high frequency data sources. Two notable examples are the University of Maryland (UofM) and Carnegie Mellon University (CMU). UofM’s Transportation Institute aggregates information from the Department of Transportation, mobile device location data, and other government sources to generate a social distancing index and estimate economic impacts. In conjunction with one of academia’s leading experts on machine learning, CMU has developed an outbreak “nowcast” based on data from Google, Facebook, and other sources.

Alternative Data and the Investment Process

Outside of the realm of economics, we believe alternative data may have an important role to play in the investment process and security selection. Currently, Lord Abbett has a cross-departmental team evaluating and examining new sources of data to assess if they provide incremental alpha to our investing. We look forward to sharing more with you on this topic in the months ahead.

 

1https://tracktherecovery.org/.

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

RELATED TOPICS

About The Author

image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field