Trying to figure out the future in the current climate is enough to give you a migraine. Where is the economy heading? Should you take risks or circle the wagons? Can you hire and spend or do you need to cut overhead and retract? People are relying on you to make the right decisions. But unfortunately, the data which most of us receive is not very helpful.
For example, this week the US reported gross domestic product (GDP) — the broadest measure of the health of the economy — bounced back last quarter. Good news? My advice: ignore it. Why? Because like most of the big numbers that the government reports this number is based on surveys, and how accurate are you when you answer a survey? At worst, it’s inaccurate, at best, it’s merely preliminary data that’s revised multiple times over the succeeding months. By the time it’s finalized the data is too old to be of use to any business manager looking to figure out the economic future.
My advice: base your decisions on actual data.
Don’t spend too much of your time analyzing the Bureau of Labor Statistics’ monthly unemployment rate. That, too, is estimated (and revised). However, the information from ADP and Paychex — the country’s two biggest payroll service companies — are based on the real data from their real customers in their real payroll systems. Last month, ADP reported that the country added 208,000 new jobs and that annual pay increases were at 7.8%. Paychex reported a slowdown in small business hiring and hourly pay increases of about 5% from a year ago.
I also ignore the dozens of surveys pitched to me from companies and their PR firms measuring small business “optimism” and “confidence”. They’re mostly pushing someone else’s agenda and aren’t very scientific. Instead, I watch the banks. This month, for example, the CEOs of JP Morgan and Wells Fargo sounded pretty (if not surprisingly) positive about their small business loans and credit card spending data from their actual customers.
When it comes to consumer spending ignore the retail sales numbers from the US Census Bureau. and be careful of industry reports because even National Retail Federation’s numbers are estimates and let’s face it: it’s a trade association that wants to avoid bad news about its members.
I prefer to closely watch the big box public companies that are actually selling to actual consumers. Retail earnings from big companies like Walmart, Targetand Amazon are released by the end of the month following the quarter close. Also look at how FedEx and UPS are doing because they pretty much ship everything made and sold online. FedEx is reporting an 11% decline in shipments last quarter.
If you want a good a barometer of the global economy then there’s nothing better than the Baltic Dry Index. This is an index that measures the cost of shipping through the Baltic Sea, one of the world’s busiest shipping corridors. If the index is rising that means a higher demand for freight which means increased shipping activity. Unfortunately, the index is down significantly over the past year.
Travel is critical to the economy because when people are out and about it means they’re visiting customers and suppliers, attending conferences and going on vacation. You can wait to hear what the airlines are reporting but a more up-to-the-minute look at how the industry is faring can be found by the daily reports made by the Transportation Security Administration. As of last week, travelers through the US airports are at about 95% of pre-pandemic levels.
The government publishes all sorts of numbers about housing starts and home construction but the numbers I look at come from the American Institute of Architects. They’re the ones hard at work now planning the non-residential construction of the future. So the busier architects are today, the better the industry will look in the next year or so. This month’s index shows continued growth, which is a good sign for the future. Also, instead of waiting for another survey from the government on real estate activity, monitor Realtor.com’s weekly housing trends review. This week, for example, we see that housing inventories are significantly higher and new listings significant lower than a year ago. It’s not a great year to be in this business — or relying on this industry for sales.
Although I’m not a fan of surveys, there is one that I do like and it comes from the Institute of Supply Management. This is an industry group made up primarily of purchasing managers. What better way to know how an industry is doing then to ask how much they’re buying, right? Every month they accumulate a lot of data from their members and then break it down between manufacturing and service companies. According to the ISM, manufacturers are flirting with retraction but the service industry remains pretty strong.
We’re all trying to figure out where the economy is going. Right now it’s a mixed bag but overall trending down. How can I tell? By relying on actual data from actual companies instead of estimates and surveys that are best guesses and subject to later revisions. So should you.