As lucky as my wife is to have me — and she will admit it if pressed — she also will admit (often when not pressed) that I can be a trial.
As lucky as my wife is to have me — and she will admit it if pressed — she also will admit (often when not pressed) that I can be a trial. One trait that has annoyed her as long as we have known each other is my tendency, when in a shopping center, to walk the entire property to spot vacancies and to assess the tenant mix. I started out as a real estate developer, and I still want to see for myself what is happening on the ground.
I have since widened my horizons to other asset classes, but I continue to have a desire to see for myself what is really going on. This is a little tougher to do, of course, in the capital markets because you can't walk around.
But I believe that real-world metrics provide invaluable context and color for the more formal analyses prepared by the government.
In fact, the most important indicators for the health of the modern economy — employment and consumer spending — are the most visible, so even if you don't follow the stats, you may be able to learn more about the economy as a whole simply by looking around than you would think possible.
Consider the following everyday metrics:
Restaurants. Employment is the most important driver of the economy, and the service industry is typically where the effects of a poor jobs market first show up. Who are the servers, and how good a job are they doing? The fast-food restaurant where I eat occasionally no longer has teenagers working there; instead, you will find older people serving you.
This is a bad sign for employment. If jobs that would normally be taken by unskilled teens are instead filled by skilled adults, it is a sign that those seasoned workers can't find more-lucrative work.
Subways. I live in Boston, a major financial center, so keeping an eye on how full the subway is on the way in from the suburbs can provide an indication of financial-sector employment and, indirectly, financial-sector health. Recently, the subway has been relatively empty, so if there is improvement, it hasn't yet shown up there.
Sunday papers. This is less useful than it used to be, when classified ads appeared mainly in print instead of on the web. Still, the thickness of the paper seems to correlate with the strength of the economy. Right now, the paper is pretty thin, but it at least seems to have stopped shrinking.
Malls. How full are the parking lots at shopping centers? If they are full, people are shopping. Which stores are full? Wal-Mart? Target? Tiffany's? The mix of shoppers' cars can tell you a lot, too. For example, I pass by a large mall on my way home that is aimed at upscale shoppers. The lot is usually pretty full, suggesting that the more affluent are still shopping. The Wal-Mart and Target lots seem less full, though. Overall, consumer spending appears to be holding up generally well, but more so for the wealthy.
Toy sales. No, not toys for kids, but fashionable items that people don't need but have been persuaded they want. Apple products are a great indicator in this area, and the terrific sales of the iPad and new iPhone suggest that the economy is continuing to do well. Although this is related to the mall metric, the fact that it plays exclusively to discretionary income makes it a more focused indicator. Similar to the above metric, however, it suggests more spending by the affluent.
Credit card mailings. My shred bin is filling up faster now with unwanted credit card offers than it has over the past couple of years. As much as I dislike that, it is a good sign in two ways. First, the fact that banks are looking to expand consumer lending again means they are feeling more confident. Second, consumer spending growth comes from earnings and credit, and credit has been missing. As it starts to come back, it will likely act to support spending.
Local real estate. Around my town, there have been several foreclosures. If the homes were sitting vacant and unmaintained, that would be a bad sign. But “for sale” signs are being replaced with “sold” signs in reasonably short order, even after the expiration of the tax credit. Overall, it is a pretty good sign, but of course very local in nature.
Based on these real-world metrics, I am seeing a somewhat weaker economic picture than the one painted by government statistical releases.
This suggests remaining cautious and not counting on the recovery just yet.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, a broker-dealer and registered investment adviser.
