Odd Indicators That May Predict the Economy
by Phil Love, Pactola President/CEO
CAP Senior Member
9/11/2019

As a student of economics, I enjoy stories of odd indicators to predict the economy. Alan Greenspan had his dry cleaning index, where he thought a drop in dry cleaning income is from a drop in disposable income. He would also look closely at copper prices. If prices were shooting up, this indicated more demand for copper in the building industry and showed future economic growth. 

 Another one is to watch the production of cardboard boxes. When more are produced, there are more items that need to be shipped, indicating a healthy economy.  There have been some who have measured the width of ties and length of skirts as economic indicators. Some think that increases in cheaper chicken consumption while seeing decreases in more expensive protein like beef are a sign of economic weakness.

One indicator is to look at recreational vehicle sales. Now more than 80% of RVs sold in the US and made in Indiana and 65% of those come from the county of Elkhart, in the north part of the state near the Michigan border. 

Wholesale shipments of RVs are down 20.3% in 2019, following a dip of 4% last year. Some manufacturers have been slashing output and cutting employee expenses with a shorter work week according to the Indianapolis Star. The theory behind this being a leading indicator of the economy is that people do not purchase larger ticket items if they believe that tougher economic times are ahead. Another item to look at is auto sales, which declined 1.8% in year-over-year sales in July.

Michael Hicks, a Ball State University economist, states that since 1982 when RV sales were first tracked, that the recessions which started in 1990, 2001, and 2007 had two consecutive years of decreasing RV sales. This indicator may not be completely accurate. Kevin Broom of the RV Industry Association notes that RV shipments have dropped in five periods since 1981 but only predicted recessions which followed in three of the periods. 

Hicks thinks a large portion of the drop in sales is from increased costs, such as higher tariffs imposed on Chinese imports, which are a big portion of RV supply inputs. It is unclear how much of the drop in sales is from higher product costs and how much may be from trepidation over the future of the economy. 

Currently, we still see low unemployment, good wage growth, and consumer spending. Time will tell if the RV indicator is correct in its current predication of a slowing economy. Meanwhile, it’s fun to see how various factors interact to help us decode the future.

 

Pactola is a CUAD CAP Senior Member and a subsidiary of Midwest Business Solutions. We are a Credit Union Service Organization that is dedicated to commercial and agricultural lending and serving multiple credit unions and banks throughout the United States with our services. We help our partners increase their earning assets and profitability. By doing so, we help them become a relevant financial force in their community increasing social good through helping businesses and farmers. Visit our website to learn more. You can contact Phil Love, Pactola CEO at phil.love@pactola.com or 605.223.5154.

 

<< Go to Memo List