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Looking in the Wrong Places

June 10, 2022

As a business leader, do you often get caught up in data trends that have little to no correlation to your company? Learn how to focus on the most relevant leading indicators and information with the latest episode of TrendsTalk with ITR CEO and Chief Economist Brian Beaulieu.

 

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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.


Hello. I'm Brian Beaulieu, CEO, Chief Economist for ITR Economics. And thank you for joining me for this edition of TrendsTalk. Subject today is, looking in the wrong places. That's how I titled it in my head anyways. People are bombarded every day with an amazing moraines of what appears to be data inputs, headlines, and it can turn your head around and keep you spinning until you don't know which way the economy is going and how you should be planning your business to go with those trends, whether they're up or down or sideways.

Alan and I, in our first book, Make Your Move, we devoted an entire chapter to picking the right leading indicators or the right outside indicators for businesses. I just wanted to go back there a little bit, because I have customers and people when I'm out on the road coming up to me and saying things like, "Wow, that consumer expectations or consumer confidence index is very low. That's got to be bad." And the reality is, the consumer expectations, consumer confidence trend is meaningless for the vast majority of businesses. It simply tends to reflect what people have been hearing on the news. And if the news cycle is down, then when they answer the survey, you're going to... It's garbage and garbage out. And there's no correlation to the direction of retail sales. There's no correlation to the direction of GDP employment to the real world.

It is one of those little popular, useless tidbits that had some merit, I suppose, at one point, but it hasn't for the last 20 years, anyways. We use a 1/12 rate of change on some measures like business confidence index, but not consumer confidence. Business confidence index tends to have some credibility. It has even more over in Europe. Business confidence tends to be a good leading indicator in Europe, and it can be here in the United States. Really, when we look at consumer expectations to go back to that data point, the only time I've ever seen it work well is for a car dealer, chain of car dealerships that we were doing some work for. That seemed to correlate to that business. But in all the other times we've run analysis of leading indicators, it's come up as a big zero.

The same thing is true with the stock market. You hear these gigantic headlines about big numbers, either down or up, lately they've been down. What does that have to do with your business? Have you checked? Have you run a comparison of what's going on in the stock market to your sales? I mean, that's something that we do all the time. How are rising interest rates impacting our customers? How are stock market volatility changes, gyrations, impacting sales? If it's B2C, probably not a whole lot. Maybe more so B2B, but even then, it usually isn't that strong of a correlation unless the trend has been going on long enough.

So I think that the point of this is, take a breath. And first thing you should do is ask yourself, "Is this a trend that really matters?" If you want to know if it matters to us, if we think it matters, go on our website and check out the Insider Membership. There you'll get constant updates about what our leading indicators are telling us. Glad to share it. We write blogs about these things. Obviously, we do Trends Talks about such things. I think the important part that you're not reading about right now, as I'm doing this talk, is that we have some tentative rising trends going on in some rates of change.

For instance, the housing starts, one that already change likely has reversed direction. I say likely because we have very definite standard technical criteria that has to be met before we will say it has changed. But when we run the analysis out there, yeah, it sure looks like it has reversed direction. It's got a good probability of reversing direction from decline to rise. You probably haven't picked up on that because that's some good news. And we've got people talking about economic hurricanes, and here I'm telling you that it's a passing squall. And we're already getting some green shoots out of this for the economy.

Look at the indicators with a very judicial eye. We have a couple of others, like China's leading indicator that has turned up and the rates have changed. That hasn't made the news. Either look beyond the news. Just check it out on our website. You might find it useful. If not, just check back here, because I'll be talking about these things again. Thanks for joining me for this edition of TrendsTalk.

About

Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.