Can’t figure out what to make of oft-quoted economic indicators like interest rates and GDP growth? ET Wealth looks at some unusual and wacky indicators in use around the world to gauge economic health.
1) THE RECESSION INDEX(OR R-WORD INDEX)
It is an informal index created by The Economist. It tracks the number of articles containing the word “recession” appearing in leading US financial dailies over a quarter. It works on the premise that an official recession coincides with a surge in the frequency of the word appearing in print, well before the two quarter delay it takes for a country to actually call it so. Pick up the newspaper and start counting!
The index has proved its merit in the past, successfully pinpointing the start of US recessions in 1990, 2001 and 2007.
2) GARBAGE INDICATOR
Household garbage raises a stink, but can reveal a lot about the economy, says the US Garbage Indicator created by economist Michael McDonough. It compares the change in volume of trash produced in the US with the change in its GDP, showing a strong correlation between the two. If the economy is contracting, less economic activity leads to less waste produced, while a booming economy is likely to lead to increased waste production. So if this indicator starts heading south, it may be inferred that the economy is not doing well.
The index had an 82.4% statistical correlation with US economic growth from 2001 to 2012.
3) FIRST DATE INDICATOR
When the going gets tough, the tough start dating. US-based online dating service Match.com noticed a pattern in its site activity during tough times that seems to indicate that people seek out company particularly when sentiments sour, perhaps as a means to keep all the misery at bay.
The fourth quarter of 2008 was the dating website’s busiest in over seven years. Match. com had a similar surge in traffic in late 2001, right after the September 11 attacks.
4) BIG MAC INDEX
This index measures the purchasing power parity between two currencies using the McDonald’s Big Mac burger. It is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued compared with the second. If it is higher, then the first currency is over-valued.
As per January 2015 figures, the rupee is undervalued by more than 60% compared to the dollar (Maharaja Mac is our equivalent of the Big Mac).
5) HIGH HEEL INDEX
Want to know if the economy is really rebounding? Check the height of heels worn by women! Trevor Davis, a consumer products expert at IBM, suggests that the height of women’s heels moves in tandem with the broader economic climate, with the heights inching up during downturns as consumers turn to more flamboyant fashions as a means of escape.
While the median height of women’s heels peaked at seven inches at the height of the economic downturn in 2009, it dropped to two inches by 2011, according to a report by Portfolio.com.
6) HEMLINE INDEX
A ladies’ fashion-based indicator of economic health is the Hemline Index discovered by economist George Taylor in the 1920s. Noticing that skirt hemlines climbed during the roaring 1920s, but fell again during the Great Depression, he surmised that women wore shorter skirts to show off their expensive silk stockings during good times, but longer hemlines were more preferable to cover bare legs during a downturn.
Economists cite the example of the lengthy dresses that were in vogue in the aftermath of the financial crisis of 2008 to support this theory.
7) SKYSCRAPER BOOM INDICATOR
The Barclays Skyscraper Index tracks the boom in construction of skyscrapers as a forewarning of an economic slump. It says construction booms characterised by massive skyscrapers coming up coincide with the beginning of economic downturns. Higher the rate of increase in construction, longer the downturn duration.
The Great Depression of the 1930s was preceded by the construction of three mega buildings: 40, Wall Street, the Chrysler Building and the Empire State Building. More recently, the Burj Khalifa’s unveiling coincided with a global recession.
8) INTERNET COUPON INDEX
Are more and more consumers redeeming coupons to pay for goods? If so, it may be a sign of tough times ahead. Coupons.com developed this index to track how often people view and print coupons, studying changes in consumer behaviour pattern as an indicator of economic activity. Higher usage of coupons suggests that consumers are under financial pressure.
Published: 20 Apr, 2015. By Sanket Dhanorkar
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