From the great business cycle economist Victor Zarnowitz comes an old rule for recessions - the deeper and more dramatic the decline in the business cycle, the more likely there will a steep recovery. Well, we are really seeing that with the US economy.
The chart above shows the NY Fed weekly economic index scaled to align with the four-quarter GDP growth rate. It is off the charts. We are almost completely back to old levels. Now, there will be nothing like going back to the pre-COVID world. Tastes have changed. Businesses have changed. Productivity has changed, but it is hard to argue that there is a disconnect between the financial and real economy when we see these types of numbers.
There are good arguments on whether financial markets are overdone. Overshooting should not be surprising, but there are real recovery reasons for the equity strength. Investor concerns should not be with the recovery but with any downside surprise when everyone is thinking the same.
The WEI represents the common component of ten daily and weekly series covering consumer behavior, the labor market, and production, including: