The Economist magazine has been using a now famous self-described economic indicator since the 1980s called the Big Mac Index, or something like that. The idea is to track the price of the burger in all possible countries in their local currencies. The magazine then compares the local prices with the price at the official exchange rate in an effort to understand where there is potential disconnect between the exchange rate and the purchasing power of the currency.
It’s not as hard as it sounds but it can reveal when a currency is under or over valued and people who arbitrage that kind of information can end up making money. The reason the Big Mac Index is popular — and there are many similar indices — is that they are more or less instantaneous. You don’t have to wait while some government office collects reams of official data and analyzes it to know something and, as I said, make money on it.
When he was head of the Federal Reserve Alan Greenspan tracked similar kinds of indices to forecast the direction of the economy. Cardboard packaging is an example as is men’s underwear. Producing more packaging indicated increasing industrial output and men buy less new underwear when the economy tanks.
None of this is foolproof but the more you put these things together the more reliable the signal. Cardboard and underwear make a nice reinforcing couple. Both expanding should indicate a recovery is in place, both declining a recession. Cardboard should lead underwear so that cardboard would turn positive before underwear indicating an end of recession and so on.
I’ve lately been working on my own index and it’s very crude and I don’t have enough data points to call this quantitative research so let’s just say it’s qualitative. I’ve started measuring the amount of time it takes a hotel to recover a room service cart from the hall on my floor. I never order room service so I am dependent on the strangers around me for this research.
Typically when someone gets a room service meal they consume it and then place the cart in the hallway so that the room doesn’t feel cramped or smell of old French fries. In good times I’ve seen carts disappear within hours, which I find acceptable. But lately the time to retrieve a cart has grown alarmingly high.
I was in Washington earlier this summer and there was a cart presumably from the room next door in the hall when I checked in. After a full day the cart was still there an empty champagne bottle in a bucket of water and undisclosed goodies under the metal chafing lid. Twenty-four hours is my limit and at that point I called the front desk to ask for days and times of garbage pickups in DC. They were not amused but a few hours later the cart was gone.
To my untutored eye, leaving the carts in the halls is symptomatic of a hotel not staffing adequately in order to save a few bucks. It certainly could mean lax training and poor management but giving the benefit of the doubt, I look for an economic reason.
Cutting labor costs is one way that many companies have been able to show growth in profits and productivity since the recession supposedly ended. On the flip side, it has resulted in a sluggish jobs market and stubbornly high unemployment.
I am writing this in a hotel room in Manhattan waiting for the CRM Evolution show to begin its second day. There is a cart in the hall from last night and the clock is ticking, but at this point I don’t need to keep tabs on it. I have a feeling I know what to expect.
Since our manufacturing base has eroded so much in the last twenty years, the old reliable cardboard and underwear metrics might be passé but the services economy has many similar examples to offer if we only know where to look.
Yesterday the DOW dropped more than six hundred points including after hours trading and for the last couple of weeks about three thousand points of value have evaporated in the August heat.
Wise guys are now talking about a double dip recession. I could have told you that in May.