High-Frequency Indicators Diverge from Monthly Metrics, Reflecting Economic Shifts

High-frequency weekly indicators are diverging sharply from monthly metrics. These indicators provide a good nowcast of the economy and can signal changes before monthly metrics. While noisy, they offer valuable insights into the current state of the economy.

High-frequency weekly indicators have emerged as a powerful tool for nowcasting the economy, providing valuable insights into its current state before official monthly metrics are released. While these indicators can be noisy, they offer significant advantages in signaling economic changes in real-time.

Research has shown that in small open economies, such as those in Central and Eastern Europe and the former Soviet Union (CESEE), high-frequency indicators can be particularly effective. A study [1] compared various advanced nowcasting methods within the data context typical for these economies. The paper evaluated bridge equation models, MIDAS models, MF-VAR models, the DFM, and the MF-3PRF, among others. It found that factor models, particularly the DFM, performed best in this setting.

The study also explored the benefits of combining DFM and MF-3PRF nowcasts, which proved effective in periods of moderate volatility in real GDP growth. The use of a smaller set of indicators showed greater variability, indicating that a large scale information set may not always be necessary. Furthermore, the relative importance of news from certain indicator categories increased during the COVID-19 period, suggesting that the DFM’s dominance was reinforced by the inclusion of this data.

High-frequency weekly indicators are particularly useful in detecting early signs of economic changes. For instance, in Slovenia, nowcasts in April require a two-quarter delay, making high-frequency indicators essential for timely economic assessments. The optimal lag length specifications for these indicators vary across different data sets and information sets, necessitating continuous evaluation and adaptation.

In conclusion, high-frequency weekly indicators provide a valuable tool for economic nowcasting, offering real-time insights into the economy's current state. While they may be noisy, their ability to signal changes before official monthly metrics makes them an invaluable resource for investors and financial professionals. Further research and continuous adaptation of these methods will be crucial in leveraging their full potential.

References:
[1] https://link.springer.com/article/10.1007/s10663-025-09656-0