Since you have lately been deluged with forecasts about the economy, the election, and the trucking business, we won’t offer you any more of those. Instead, here are some suggestions on how to make the best use of economic news and forecasts.
Look at employment numbers
Early each month, usually on the first Friday, the U.S. Bureau of Labor Statistics issues a report that contains the latest job numbers. The figures are gathered from two separate surveys on employment. One, called the Household Survey, provides the inputs from which the unemployment rate is calculated. The second, called the Establishment Survey, provides the inputs from which the level of total non-farm payroll employment is calculated.
While the unemployment rate receives the lion’s share of attention in the press, the number that matters most is the month-to-month change in total non-farm payroll employment. Why? Because it is only during periods of recession that we see several consecutive month-to-month declines in that number. In the 2007 to 2009 recession, payroll employment fell for 22 consecutive months. In the 2001 recession, payroll employment fell for 14 consecutive months.
Since the end of the last recession in 2009, there have been a couple of instances where the initial estimate of employment has shown a month-to-month drop. All of which were associated with weather events. So, if you are looking for the most reliable indicator of whether the economy has slowed to the point of recession, look no further than the payroll data.
Sources to scrutinize
The one source you should not use for anything, other than entertainment, is any instruction from any politician of any stripe. Do not listen to anything any of them have to say about current and prospective economic conditions.
Another source you should use with caution is the stock market. While it is true that declines in the stock market have happened ahead of, and during, recessions, there are many other instances where a decline in the stock market has not been followed by an economic downturn. Indeed, it has been noted that the stock market has correctly forecasted nine of the last 14 recessions. Non-farm payroll employment numbers, meanwhile, have never missed.
Just as you don’t ask your barber to clean your teeth nor your dentist to cut your hair, you should consult with the folks who have the proper expertise to help you evaluate conditions in your business. Following that same logic, don’t ask the fellow who forecasts foreign gold stocks on cable TV for his outlook on the truck aftermarket.
Along the same lines, it is important to note that generic forecasts are usually not very helpful in the formulation of business strategy. Not only does one size not fit all, the same forecast can have different implications for different entities. It is not enough to know that the growth rate of gross domestic product (GDP) might be higher in the months ahead. You need to know why and by how much before you can make much use of that information.
The right questions to ask
In addition to these external readings of current and prospective conditions, you have 24/7 access to the answers from three of the most reliable indicators you can use. They are:
- How is your biggest customer doing?
- How is your biggest supplier doing?
- How is your biggest competitor doing?
If you open the newspaper, or more likely a website browser, and determine the answers to those three questions, you will be better able to use the latest information from the outside world.
With a long career managing portfolios and coordinating domestic economic forecasting programs, Robert Dieli began RDLB, Inc. in 2001. In this role, Dieli serves as an advisor to many firms in truck, consulting, and financial services sector. He is also an economist with MacKay & Company.
