About the WEI
What is the Weekly Economic Index (WEI)?
The WEI is an index of real economic activity using timely and relevant high-frequency data. It represents the common component of 10 different daily and weekly series covering consumer behavior, the labor market and production. The WEI is scaled to the four-quarter gross domestic product (GDP) growth rate; for example, if the WEI reads -2 percent and the current level of the WEI persists for an entire quarter, we would expect, on average, GDP that quarter to be 2 percent lower than a year previously.
What are the key features of the approach?
The WEI extracts the first principal component of the 10 underlying series. This approach serves to filter out the high level of noise prevalent in individual weekly releases—while also providing a more representative measure than any one weekly data series. Each Tuesday, an initial estimate of the WEI for the past week is computed based on the historical relationship between the WEI and the available series. This value is updated on Thursday and again the following Tuesday with additional releases, before being finalized the following Thursday. Historically, the WEI tracks familiar series such as GDP and industrial production very well but provides a far timelier signal.
What are the input data?
The WEI is composed of 10 underlying series. To measure consumer behavior, we include the Redbook same-store retail sales index and the Rasmussen Consumer Index. To measure labor market conditions, we include initial and continuing unemployment insurance claims, the American Staffing Association Index of temporary and contract employment, and federal tax withholding data from Booth Financial Consulting. For production, we include U.S. steel production from the American Iron and Steel Institute, U.S. electricity output data from the Edison Electric Institute, a measure of fuel sales based on Energy Information Administration data, and total railroad traffic from the Association of American Railroads.
How do you transform the input series so that they are in comparable units?
The native units for Redbook retail sales and the tax withholding series are year-on-year percentage changes. We transform the other series to comparable units by taking 52-week log changes. This serves two purposes. First, it provides a reasonable seasonal adjustment of the raw data. Second, by casting the WEI in annual percentage changes, we construct an index well-suited to match the units of four-quarter GDP growth. Additionally, all series are standardized before the principal component is estimated.
For reference, we plot the WEI alongside the four-quarter annual real GDP growth rate, using the latest quarterly GDP data release from the U.S. Bureau of Economic Analysis, and a 13-week moving average of the WEI, which approximates the four-quarter annual real GDP growth rate for a hypothetical quarter ending in a given week.
When and why was the WEI developed?
The WEI is based on earlier work described in the Council of Economic Advisers (2013). The Lewis, Mertens and Stock WEI presented here was initiated in early March 2020 in response to the need for tools to monitor the rapid evolution of economic conditions at the onset of the COVID-19 pandemic. The index offers a timelier reading of economic developments than common indicators reported at monthly or quarterly frequencies, which are available only at a considerable time after the reference period has ended.
How should large positive readings of the WEI in spring 2021 be interpreted?
Since the WEI is computed in annual percentage changes, it increased dramatically in April 2021. This is for the most part due to so-called base effects: the reference weeks for those readings of the WEI, during April 2020, saw a sharp deterioration in economic conditions, and all of the subsequent rebound in economic activity therefore appears abruptly in the WEI during April 2021. We are temporarily publishing an alternative indicator of the state of activity relative to pre-pandemic levels alongside the final value of each week’s WEI. Instead of annual percentage changes, the input data for this alternative measure consists of percentage changes relative to February 2020, combined using the baseline WEI weights. This alternative measure, which appears in the commentary displayed beside the interactive, provides an indication of where current activity lies relative to just before the pandemic.
NOTE: The index is not an official forecast of the Federal Reserve Bank of Dallas, its president, the Federal Reserve Bank of New York, its president, the Federal Reserve System or the Federal Open Market Committee.
The WEI was developed by Daniel J. Lewis, an economist at the Federal Reserve Bank of New York; Karel Mertens, senior economic policy advisor at the Federal Reserve Bank of Dallas; and James H. Stock, professor of economics at Harvard University.