This week it will be confirmed that Britain’s economy is in the deepest recession for at least a century. Yet only a few days ago, the Bank of England heralded a return to growth, forecasting a more rapid recovery than previously feared.
Official growth figures due to be published on Wednesday by the Office for National Statistics are expected to show a 21% plunge in gross domestic product (GDP) in the three months to June. After GDP slumped by 2.2% in the first quarter, this will confirm two consecutive quarters of falling output – the technical definition of a recession.
But long before the official economic data becomes available, early snapshots of activity have been being examined by the Bank to determine the state of the economy right now, rather than a few weeks ago – with a vast array of unusual information at its disposal, ranging from internet searches to road traffic patterns, restaurant bookings and cinema ticket sales.
For the first time in millennia of economic events, the coronavirus pandemic could prove the first big-data recession – trackable in real time. “It’s unique in many respects,” says Ruth Gregory, UK economist at consultancy Capital Economics. “In previous recoveries we didn’t have as much real-time information, so that has been a useful early indicator of where we’re heading.”
That is not to say that scouring unusual data sources is entirely new. For centuries, traders have monitored ships arriving at ports to gain an edge on their rivals, and counted cranes over cities or taxis outside City banks and law firms.
The former US Federal Reserve chairman Alan Greenspan speculated that economic downturns could be measured by men’s underwear – suggesting that sales of boxer shorts and briefs fell when times were tough.
Economists have drawn up the “leading lipstick indicator” to illustrate how sales of small luxuries increase when a downturn looms, while demand for haircuts falls and discount food and drink sales soar.
During the early-1990s recession, the Conservative chancellor, Norman Lamont, was faced with troubling economic news as the government prepared for the 1992 general election. The official figures still showed Britain was stuck in a deep recession, unemployment was rising and there were record numbers of bankruptcies and house repossessions.
But Lamont picked on surveys of business confidence, retail sales and a rising use of banknotes and coins in the economy to famously declare that the “green shoots of economic spring” were rising.
This time around, however, the unique nature of the shock inflicted by Covid has pushed analysts to examine swaths of so-called rapid indicators. Never before have transport usage and social interactions been brought to such a rapid halt – leading to a new school of economic analysis. Here are some of the data sets being examined:
Billions of search requests are plugged into Google, Bing and other search engines each day, building a reasonable picture of humanity’s wants and needs. Assuming they could provide a hint of spending patterns, the Bank’s analysts pored over trillions of bytes of data to work out which way the economic winds might blow in the pandemic.
Google searches for social activities watched by Threadneedle Street have started to rise again as lockdown measures are rolled back, indicating that social spending – in pubs, bars, hotels and restaurants – could be bouncing back.