Related Resources Screen for the best stocks for you See how MSN Moneys StockScouter rates a stock Find out today's big trends Jubak's Journal Recent articles: • 5 stocks whose turn has come, 1/6/2004 • 10 ways to profit from a dangerous year, 1/2/2004 • 5 big tech trends to watch in 04, 12/30/2003 More... | Jubak's Journal 10 real-world indicators give '04 a thumbs up Who needs GDP? You encounter great economic barometers every time you leave the house, turn down the heat or queue up at the box office. By Jim Jubak You quite possibly know as much as the experts do about whether the economy will roar ahead in 2004, move over to the slow lane, or stall out completely. How could that be? Granted, professional economy-watchers such as Alan Greenspan and his colleagues at the U.S. Federal Reserve in Washington employ an army of statisticians that none of us can hope to match. That gives them the access to big-picture indicators that measure things such as the core producer price index and capacity utilization. And that pretty much guarantees that they wont mistake a blip in Cleveland for a nationwide trend. But building these big-picture statistics means filtering out much of the anecdotal detail that gives an economy its flavor. When it comes to catching the nuances of an economic mood or the very beginnings of a trend, those of us who live in the economy every day have an edge over anyone who relies solely on the official indicators. Someone like Greenspan uses both the official numbers and anecdotal real-life indicators to take his read of the economy.
Right now, for example, real-life indicators are doing a better job than the official numbers at catching the next shift in the economic recovery and the peculiar half-hopeful/half-fearful mood driving many buying decisions by consumers and corporate managers alike. Lets take a look at 10 real-life indicators that you can follow as you walk the street, shop the aisles and gab with friends. Not every one is positive. But together I think theyre giving a thumbs up to 2004. Champagne and parties: feelin' good The champagne indicator. Its not how much alcohol the nation drinks thats important, but the price of what it drinks. The volume of alcoholic beverages consumed in the United States remains relatively constant in good times and bad, but when the economy is feeling iffy, consumers switch to cheaper brands. So this years soaring consumption of French champagne, and the high-end segment of that already high-end sector in particular, is an indicator of rising consumer confidence. Total French champagne exports in 2003 are expected to exceed the 112 million bottles exported in 2002, according to the Comite Interprofessional du Vin de Champagne, the trade association of the French champagne makers. And thats as overall exports of French wine and spirits dropped in 2003. The end-of-the-year company party indicator. Lets not forget that other holiday indicator: the willingness of companies to throw a year-end bash for employees and how much theyre willing to spend on it. About 95% of companies planned some sort of holiday party in 2003, according to executive search company Battalia Winston International, up from 83% in 2001. Around 90% will cover the entire cost of the party, up from 85% in 2002, and the menu this year was much more likely to include shrimp instead of chicken. More on 2004s economic outlook
The annoying ads indicator. If you think that there were more perfume ads on TV this Christmas than last, or that the articles are taking up less of your favorite magazine lately, youre absolutely right. Ad spending in the United States has shown a year-over-year increase every month since May 2002 (with the exception of a dip in February 2003 as a result of the Olympics in 2002), Advertising Age says. Ad spending generally anticipates the direction of the economy. It peaked in December 2000, three months before the official start of the recession. The recovery has still got a way to go. Factor in inflation, and ad spending in 2003 is still below the 2000 level. The new bank indicator. Im not talking about new branches of banks that have just expanded into your community and are therefore unfamiliar to you. These banks are totally new to everyone because theyre brand-new startups. In Minnesota, eight new banks were chartered in 2003. In North Carolina, two new banks opened for business in 2003 and three more were waiting for state charters as the year ended. Thats up from just one new bank in 2002. And the number of new banks opening in the state could double in 2004. New bank applications are a leading indicator because nobody puts up the capital to open a bank -- the minimum is $6 million in North Carolina -- when they think the economy is slowing. The pace picks up when a recovery is well-established as investor groups rush to snap up the last good locations before prices climb. The auction sales indicator. The industrial auction business is another leading indicator and an especially useful one now, as everybody tries to figure out when business spending will snap back. When the economy is headed into the tank, the auction market, especially the industrial and commercial auction market, is flooded with used equipment that sells at amazing prices. But sales lag because, although everybody wants to sell, nobody wants to buy. As the economy starts its recovery, auction sales of used commercial and industrial equipment pick up before sales of new equipment do: buying cheap used gear is one way to hedge your bet if the recovery heads south again. So, for example, Ritchie Bros. Auctioneers Watch for signs of rudeness The movie-ticket inflation indicator. Its easy to raise prices when youve got a hot product and much tougher when the size of your market keeps shrinking. Which is why tracking the price of movie tickets is such a good indicator of underlying trends in inflation: The number of movie tickets sold has dropped in four of the last 10 years, but the industry has kept revenue climbing in most years by raising ticket prices. That didnt work last year as the number of tickets sold dropped by 5% and ticket prices climbed by 4%, producing the industrys first decline in box office revenue since 1991. Still, a 4% jump in ticket prices during a year with only a so-so lineup of films and a still-shaky economic recovery indicates that inflation isnt as dead as the official numbers indicate. Look for this industry and others to attempt to pick up lost ground in 2004. The Disney World dollar indicator. Everyone knows that in the long run a falling U.S. dollar is bad news for the U.S. economy: It means both higher interest rates and more expensive imports. In the short run, however, a falling dollar will provide a boost to the U.S. economy by making U.S. goods and services cheaper for overseas consumers. Just how big a boost? Watch the number of European travelers who take their euros to Floridas Walt Disney World. Merrill Lynch is projecting an 8% jump in attendance at the park in 2004 above the depressed levels of 2003. Anything above that, if its driven by European traffic, says the weak dollar boost to the U.S. economy will be heftier than expected. The thermostat indicator. High energy prices, like the kind we have now, will start to put a real crimp in the economy when they begin to change behavior. As long as folks are willing to drive on vacation, as long as airlines eat higher fuel expenses to keep market share, as long as shippers find other ways to cut costs so they dont have to raise prices, the effects of higher energy prices on the economy will be limited. But look out when energy prices start to change behavior. First tip off? When you start to regularly turn down the thermostat a degree or two and pile on the sweaters. The Who reads the bill indicator. Know anybody who pays real attention to all those added charges on the cell phone or cable bills? Who can even begin to understand them all? In a time of no inflation, companies havent been raising sticker prices but instead adding on small nuisance fees in the belief, correct so far, that no one would go shopping for a lower price if the add-on was just a buck or so -- at a time. A lot of the underlying inflation in the economy is like this -- and therefore tough to measure and easy to forget each month. Look out, though, if consumers begin to pay attention and demand fee rollbacks (or go shopping for lower prices) as companies begin to use the economic recovery to raise real prices. If we all start paying attention to those complicated bills, it will indicate that this recovery will be more restrained than most. The rudeness indicator. I got two Christmas cards from my favorite Italian restaurant this year. The florist asked when it would be convenient to deliver my holiday centerpiece and actually showed up as promised. A clerk at my local Barnes & Noble took 10 minutes to help me find a book that had been misshelved. Thats the kind of customer service I expect when the economy is in the dumpster. Ill miss it. But I also long for the days when I can complain about being ignored by salespeople who dont have any stock to show me (and couldnt be bothered if they did.) When the U.S. service economy is back to its old, rude self, then Ill know that I can look forward to a period of sustained growth. The tally Whats the final score? Five indicators in the Up column, one Down, and four neutral so far. Real life, and its indicators, tell me the economy is headed up in 2004, with a danger sign or two or three to watch, and with plenty of room for further improvement. Can the official economic statistical indicators do any better? Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday. E-mail Jim Jubak at jjmail@microsoft.com. At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: none. He does not own short positions in any stock mentioned in this column. | ||||||||||||||||||||||||||||
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