Uncommonly Clever Economic Indicators

In the September 21, 2009 Forbes article "Uncommonly Clever Economic Indicators," Maureen Farrell explains "The stock market is a foggy window on the economy. Follow the pink ties and restaurant garbage piles."

The folks who get paid big bucks to know are saying the recession is over. Then again, those are the same folks who didn't head off the latest crippling crisis swelling right beneath their noses.

Want to know if we're really on the road to recovery? Look for pink ties, says Robert Allsbrook, chief economist for Regions Bank, in Birmingham, Ala.

"Men and women wear bright colors when they feel confident, and drab beige colors when they feel bad," says Allsbrook. "Men's ties are a leading indicator because they're a very inexpensive way to change a wardrobe."

Last summer, even before Lehman Brothers fell into bankruptcy, Allsbrook says he saw muted wardrobes, what he calls "funeral clothes." And now? "Since the start of the summer, I've seen lots of men wearing pink and fuchsia colored ties," he says.

Economists have access to reams of data and sophisticated computer models at their disposal, based on standard variables like the unemployment rate, bond yields, new housing starts and inflation. One problem with much of that data: "The stuff that people are looking at in the news are lagging indicators," says Owen Shapiro, principal at Leo J. Shapiro & Associates, which tracks consumer and investor behavior. Clouding matters further, he adds: "Many numbers have an emotional or disproportional impact on how people feel."

Even stock prices--which in theory are supposed to reflect the future earning power of the companies they track--don't do a consistently good job of calling a crash, or a recovery.

For extra enlightenment, we went looking for a slew of offbeat economic indicators. The overall message: Things aren't getting worse, but we still have a long way to go. Here are some highlights:

Telecommunications Infrastructure
Dave Maddox owns and operates communications towers leased to wireless operators like Sprint and T-Mobile. Each of his 10 towers (what your cellphone talks to in a given area) in the Los Angeles and Boston metropolitan regions can service up to 10 different carriers. This summer, he set up four new base stations for four operators looking to expand their coverage areas--the most activity he's seen in several years. That kind of cap-ex spending portends a rebound, he says.

Christie's Autumn Wine Auction
Of all items auctioned at Christie's, wine may be the best proxy for economic activity. That's because--unlike rabid, 17th-century-furniture collectors, for whom price might be no option--wine bidders are often speculators looking to buy low and sell high, explains Heather Barnhart, the auction house's senior vice president and regional director for the Americas. In September Christie's moved $2.6 million worth of vino, nearly double last year's volume. "I think it's a great measure of people's overall confidence," she says.

The Size Of Restaurant Garbage Piles
Americans are eating out again, and that's a good sign. You can see that trend in the size of the garbage piles behind restaurants, says Sam Firer, a consultant for the Hall Company, a restaurant advisory. "The garbage is not from what people have eaten, it's from what you use to make the food," says Firer, whose clients include New York's B.R. Restaurant Group, which owns Dos Caminos, Blue Water Grill and Blue Fin. After a rough 2008, he adds, "this summer it was stinky [of garbage] again."

Another good sign: One of Firer's clients, Alicart Restaurant Group, is opening a 6,000-square-foot Carmine's Italian restaurant in Washington, D.C. "And they're conservative folks," says Firer.

Denim Sales
Denim offers a dependable take on the economy, says Marshal Cohen, chief industry analyst at NPD Group, a market research firm. Reason: Jeans are a relatively cheap investment and one of the first things consumers buy when the economy starts to bounce back. While overall apparel sales have slumped, denim sales have already started to pop: For the six months from January to June, denim sales jumped 5.3% to $7.6 billion vs. the same period in 2008.

Hotel Cancellations
Last winter no one wanted to keep a date with the MGM Mirage in Las Vegas. Cancellations at the company's meeting and corporate events department spiked by more than 50% between October 2008 and March 2009, says Dan D'Arrigo, executive vice president and chief financial officer. "We couldn't drop prices fast enough to keep our space filled," he adds. By early April, cancellations had slowed down, and by August, the rate was about 20% (in ordinary climates it hovers in the mid teens).

More good news: In the past three months, major event planners are booking space for 2010, 2011 and even 2012. "We couldn't get meeting event planners to take our calls earlier this year," says D'Arrigo.

Index of Leading Economic Indicators up more than expected in April

By TALI ARBEL, AP Business Writer – May 21, 2009
NEW YORK – A private research's group forecast of economic activity rose more than expected in April, the first gain in seven months and fresh evidence that the recession could end later this year.
The Conference Board said Thursday its index of leading economic indicators, designed to forecast economic activity in the next three to six months, rose 1 percent last month. Economists surveyed by Thomson Reuters expected a 0.8 percent increase.
Conference Board economist Ken Goldstein said that means declines in activity could switch to growth in the overall economy in the second half of the year. The recession began in December 2007.
In April, the index posted its biggest gain since November 2005, said Ian Shepherdson, chief U.S. economist at High Frequency Economics. It is now even with its level from last November.
The index is derived from 10 components including stock prices, the money supply, jobless claims and new orders by manufacturers.
The Conference Board said strengths among the components exceeded weaknesses for the first time in more than a year. "This is more broad-based. It's not just the stock market rally," Goldstein said.
Seven indicators rose, including stock prices, as the Dow Jones industrials are up by about a third since March. Consumer expectations, the average work week, manufacturers' new orders for consumer goods and deliveries by vendors grew, while initial jobless claims dropped, also a positive.
However, some analysts expressed reservations about the strength of the gain.
"How strong the upturn will be is still in doubt, and it is possible that the improvement in (consumer) sentiment seen the last couple months, which has lifted the index of leading indicators, could stall out," Deutsche Bank chief U.S. economist Joseph LaVorgna wrote in a research note. He doesn't expect the economy to grow until early 2010.
Weekly claims for jobless aid had been dragging the index down. The U.S. unemployment rate stands at 8.9 percent and is expected to hit double digits later this year or in 2010.
The Labor Department on Thursday said new requests for jobless benefits fell to a seasonally adjusted 631,000, down from a revised figure of 643,000. Claims had reached a 14-week low of 605,000 earlier this month, which many economists thought heralded an easing in the wave of layoffs.
Earlier this week, computer giant Hewlett-Packard Co. said it would cut 6,400 jobs, or 2 percent of its work force, while credit-card issuer American Express Co. said it was slashing 4,000 jobs. Beleaguered auto makers General Motors Corp. and Chrysler LLC recently announced they will terminate their contracts with around 2,000 dealerships nationwide, which likely will result in shutdowns for many. The National Automobile Dealers Association, a trade group, said the auto makers' decisions could result in 100,000 job losses.
Meanwhile, the Conference Board said building permits, manufacturers' orders for capital goods and the real money supply weighed down the index last month.
The recession was precipitated by a crisis in housing, and while homebuilders' confidence has ticked higher, both building permits and housing construction fell to record low annual rates in April, the government said earlier this week.