Saturday, October 04, 2014

Are We Up or Are We Down?

 Like most civilians, I have at least a passing acquaintance with basic stock market indicators and some broader measures of the overall economy. Let's be quite clear: acquaintance does not equal mastery. Still, I'm pretty sure it's good if the Dow Jones and the NASDAQ are up, not so good if they're down. Likewise, I know that the GDP is a measure of what we produce as a country, while the price indices, both the CPI and PPI, tell us how fast costs are rising. For the GDP, up is good; the others, well, not so much.  

But we are in an information overload age, regardless of the field. For instance, in football, stats used to be pretty basic, as in Jordy Nelson of the Green Bay Packers has caught 37 passes for 351 yards so far this year. But that is no longer a sufficient measure of his abilities. What is his catch rate? His Effective Yards? His DYAR or Defense-Adjusted Yards Above Replacement? True, only the most die-hard pigskin cheesehead would know the answer (and know why it makes a difference). But as made famous in Michael Lewis' portrait of Oakland's A manager Billy Beane, measures like that are the keys to exploiting the margins, and winning big time.  

And what is the economy if not a giant sporting event? True, it's about dollars and cents rather than balls and strikes, and those that come out on top get money but no trophy. But there are plenty of less well known measures of up-ness and down-ness which the devoted econhead can dive into and exploit to get an advantage. And as in athletic contests, while there are definitely Hail Mary passes, more often than not the difference between winners and losers is knowing how to look at the data, interpret it and then make game time decisions based on that info. If that's not the very definition of "Moneyball" I don't know what is.  

So when I turn on CNBC, I see JOLTS, or "Job Openings and Labor Turnover Survey," a stat that gives a more nuanced view of the employment situation. There's the PCE Price Deflator, where PCE stands for "Personal Consumption Expenditure," with the deflator actually being a measure of inflation. There's even Truck Tonnage, or a measure of how much is being hauled by 18-wheelers across the country, from raw materials to finished goods. More stuff being moved, more good.  

Those are all highly quantifiable data points, in theory no different from the number reporting the Money Supply, the Unemployment Rate or Crude Oil Production. After all, you can actually go out and count the number of trucks whizzing past Exit 11 on the NJ Turnpike bound for consumer and factories. But it turns out there are also many more anecdotal measures that, while seemingly silly, actually do offer some intelligence regarding the overall direction of the economy.  

For instance, there's the "Buttered Popcorn Index." The theory goes that to escape bad times, people go to see movies, even bad ones. As evidence of its validity, devotees point to the fact the overall movies sales were way up during the 2009 recession, then flattened out as markets bounced back. Likewise, the "Coupon Redemption Index" says that as things get bad, people turn to more cost savings measures. In 2009, redemption of promotions soared to 3.3 billion. Conversely, the "Plastic Surgery Index" says that when the economy wavers, discretionary tucks and nips go by the wayside. And indeed, plastic surgery declined 9% in 2008.  

It hardly stops there. There's the "How Fast Contractors Call You Back Index" (faster responses means times are slow, and they need the work), the "Lipstick Index" (women turn to lipstick instead of more expensive indulgences in hard times) or the "Men's Underwear Index" (men forgo purchasing underwear during hard times). Actually, that last could be leading, lagging or completely neutral: men's underwear buying has never made any sense.

The bottom line is that you can find an indicator that suits your sensibilities. You can count apps, chocolate sundaes or tube socks, doesn't really matter. History says they likely have as good of a chance of being right as the "official" ones that drive decision making at the highest levels. After all, as economist Paul Samuelson observed way back in 1966, "Wall Street indexes predicted nine out of the last five recessions."


Marc Wollin of Bedford is pretty sure the Laffer Curve isn't related to baseball. His column appears regularly in The Record-Review, The Scarsdale Inquirer and online at, as well as via Facebook, LinkedIn and Twitter.

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