SuperspreadereventsandhistoryofGDPdata

US markets were closed yesterday on account of Thanksgiving holiday. Other markets across Asia like the Hang Seng and Nikkei are trading in mild green. Dow Futures have retreated a bit. US oil prices declined. Investors are perhaps catching their collective breath having done their Black Friday shopping already some days back.

We have written in the past how the good news regarding the vaccine has been discounted in the current prices across assets. But an eventual vaccine cannot mask the present scenario where new infections are rising. Many health experts in the US have warned that as millions of people travel for Thanksgiving, a huge spike in numbers of new cases and hospitalizations can occur. One aspect which is crucial about such viruses is the multiplicative nature of the rise in infection. One superspreader event can decimate the benefits of caution shown for months.

To gauge the impact of Thanksgiving travel and festivities one needs to monitor the number of new daily cases now. That number will eventually feed into hospitalization and fatalities numbers. Evolutionary experts often write that the human mind cannot grasp the processes of exponential and multiplicative nature intuitively hence one would do well to rein in the euphoria till some definitive data on new infections emerges.

Domestically, amidst the rise in new cases of the virus, we will have the Q2 (July to September) GDP data released today. The expectations range from -7% to -11%. In the previous quarter Apr- June Indian GDP contracted by 23.9 % on YOY basis. But that was on expected lines as one of the most stringent lockdowns across the world was imposed across India in that quarter. In the second quarter the reopening started and several of the high frequency indicators have already shown improvements. However the GDP data is still important as it reflects how the economy has been doing on an aggregate level.

As we wait for the data it is an opportune time to look at bit of history associated with the GDP data, and how it became the central measure to assess economic successes across economies, which are as different as chalk and cheese. Dirk Philipsen writes in his book The Little Big Number that the number first came into prominence during the post 1929 depression years where the US government was trying to formulate the correct response to widespread destitution. But any response required measuring what was happening at that point of time. Simon Kuznets came up with a magic solution to this dilemma in a report submitted to US Congress in 1934 where he aggregated all the economic activities based on the market prices and produced a singular number which can be tracked. This provided the government with the tools to manipulate the number through its policies (either monetary or fiscal). The number in coming decades has achieved world-wide usage. Kuznets in his later years himself recognized the shortcomings of such a measure as it undermines all the activities / resources which are in the common or non-marketable domain.

In the market roundup, the Euro and Pound trade mostly unchanged at 1.1920 and 1.3370 levels respectively. The Dollar index is below 92. US 10 year treasury is at 0.86. Gold trades at 1810 4/oz. Indian rupee around 73.75. Indian 10 year benchmark bond at 5.89.