Saturday, August 27, 2011

Searching for a pot of gold


US confidence indicators



Readers suggest some alternative economic indicators 
A FEW weeks ago The Economist invited readers who enjoy our Big Mac index to invent other quirky economic indicators. We were particularly interested in ideas that might help to show where the economy is heading. A vet claims that his business leads the economic cycle by six months, because when times get tough pet owners are quick to cut back on vaccinations and non-essential surgery. A reader from the pharmaceutical industry recommends tracking suppositories. “Financial worries and austerity changes in diet cause intestinal disorders,” he says, and sales of suppositories therefore rise as the economy goes down the pan. Other readers tipped packaging materials, such as wooden pallets, cartons and plastic stretch-wrap, as useful leading indicators. The best tip came from Edward Ritchie, an investment analyst in London. He tracks Google searches for the “gold price” as an indicator of economic confidence. This does not follow the gold price itself. For example, during 2008 when the world’s financial system was melting down, the gold price fell yet the number of searches soared. The chart shows that the number of gold-price searches shoots up when consumer confidence dives and subsides when households perk up again. Since the data is available earlier than conventional surveys of confidence, it is useful for spotting economic turning-points. Worryingly, the number of searches has recently vaulted above its 2008 peak, signalling the possibility of a double dip.

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