How to Spot the Recovery
A large car company seeks an unprecedented government bailout. A superhero film is one of the top grossers of the year. Two Pennsylvania teams win both the World Series and Super Bowl. Dick Clark hosts New Year's Rockin' Eve. A new President faces a recession.
1980? 2008? Both correct.
Of course some things have changed since the early '80's. Howie Mandel and I both used to have hair. Michael Jackson had dark skin. The New York Islanders were a good hockey team. Did I mention I used to have hair?
Many business owners who've been around the block have seen bad times before. We know they don't last. The recession of 1980-81 was followed by the recovery of 1982. And so the recession of 2008-2009 will be followed by the recovery, too. The only question is when.
And are there signs of recovery? No…not just yet. But there are indicators to watch for that will tell us a recovery is coming.
The Almighty Consumer
The first is the consumer, right? Experts and pundits can do all the analysis they want but the reason why the auto, real estate, financial services, manufacturing, and just about every other industry has slowed or declined is because people are…duh…spending less. So here's another point of genius that most small business owners know: When people feel more secure, they'll start spending more. Everything trickles up, and down, from the consumer. Whether they're in Cleveland or Qingdao. And no matter what our business is, we'll be affected.
So what do we watch? I recommend two places. First, pay attention to the Conference Board's Consumer Confidence Measure. Trust me, when they release this number on the last Tuesday of each month you'll hear plenty about it in the media. A nice chart plotting the CCM can be found here. When you see things start ticking up, that's a good sign.
But don't take this one metric as golden. They're only surveying 5,000 people nationwide. That's about as many people as attend a typical Florida Marlins game. And we all know how seriously we treat pollsters when they call us during dinner time. So I have a couple other unscientific metrics to follow.
For example, go to Alexa.com and check out page views for Expedia. Alexa's ranking system isn't perfect, but here you can see how many people are visiting this travel site over the past year. Activity is down pretty significantly from 2007. Also, keep an eye on auto sales. A good place to look is here. Those numbers aren't pretty right now.
Eye on Commodity Prices
But it'll change. Because when I'm feeling more confident about the economy, I may actually decide to take my kids, along with a large bottle of Jack Daniel's, to Disney (DIS). And I'll also replace my leaky Jeep Wrangler, too. When consumers like me start buying again, auto companies make cars, travel companies sell travel, and small businesses like mine get busier selling their stuff to the auto and travel industries.
I also look at commodities like raw materials and the prices of steel, copper, and oil. Right now they're all in the toilet. Low commodity prices mean low demand. Once these prices start ticking up again, that'll be the sign a recovery is on the way. I don't want to see $140-a-barrel oil again, but seeing the price of oil rise is actually a good sign of more economic activity. And that will mean more business for my business.
And have you ever heard of the Baltic Dry Index? This is one of those little-known indexes that economists like to track as a leading indicator. The index tracks the prices of moving raw materials. When it's moving up, it means economic activity is increasing. This index has been creeping up of late. Maybe that's a good sign.
Where to look for these things? You know the media will keep us all up to date on the price of oil. But for steel and copper, spot prices are provided by The Wall Street Journal right here. As of Mar. 12, the price of copper was $1.61 per pound. On Dec. 10, it was $1.46. Not a lot of movement yet, but I'm watching. And a good chart tracking the Baltic Dry Index is here.
The Media Tipping Point
My next indicator for recovery is the Fed. By now we've figured out that the people running our government, financial institutions, and largest companies have no clue whatsoever. But they're all we've got, so you gotta love 'em, right?
The Fed has been printing a ton of money over the past few months to provide liquidity for our banks. That could really be inflationary, especially when the economy starts heating up again. The way to bring the money back into the system is to tighten things up again by raising interest rates. When I see the Fed taking this action, that's telling me things are recovering. Oh, by the way, I learned this all in freshman-year economics and my final grade was a C+, so I guess that makes me as qualified as any other expert nowadays.
But the biggest indicator to watch that will tell us a recovery is on the way?
The media. The media will have a big impact deciding when our country emerges from this recession. Go to Google Trends and search for both "Recession" and "Recovery." When the number of times "Recovery" is mentioned exceeds the number of times the word "Recession" is mentioned, that means the media has now become bored with the "Recession" and instead wants to talk about the "Recovery." The talk of our economic "Recovery" will then become the new news story. People will start feeling like there's a real "Recovery" going on. Kind of like when Robert De Niro and Dustin Hoffman convinced us that we were at war with Albania in Wag the Dog. People will spend! The markets will rise! Prosperity will return! My business will profit.
And maybe then I can finally afford that hair weave.