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American Morning

Economist Discusses Unconventional Indicators

Aired April 27, 2001 - 09:35   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: The gross domestic product numbers released earlier this morning are one conventional way to track the economy, but what can a cardboard box tell us about economic conditions? As it turns out, plenty.

Our Brooks Jackson looks at some unusual measures in the economic guessing game.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): This is your basic white stuff: titanium dioxide. It's what makes white paint white. It also whitens paper and plastic. If it's white, it's liable to have TiO2 in it. And that's why some economists, when they're not keeping track of the unemployment rate or gross domestic product, like to look at how much titanium dioxide is being consumed.

(on camera): As you can see, the economy uses a lot of titanium dioxide, and the theory is, the better the economy's doing, the more it uses.

(voice-over): So the output of plants like this Millennium Chemical facility in Baltimore is an unconventional economic indicator.

(on camera): Here's the key question: How's business?

RICHARD WHITE, MILLENNIUM CHEMICALS INC.: Business is probably not as strong as we would like it.

JACKSON (voice-over): Here's another unconventional indicator: corrugated paper boxes.

FELTON FERGUSON, GAYLORD CONTAINER CORPORATION: If you can think of a business that makes a product and they need to ship it, we make the box.

JACKSON: The more boxes, the more manufacturers expect to ship and sell, so economists watch this one, too.

MARTIN REGALIA, U.S. CHAMBER OF COMMERCE: Data that you get on container demand and production kind of give you a heads-up on what else is going on in the economy, how the demand factors are and how the overall economy is feeling. JACKSON: Another indicator: railroad traffic. The industry issues detailed reports on what's being shipped, and railroad traffic figures come out every week. Economists like that.

What are these indicators telling us? Titanium dioxide consumption softened last year, but lately it's been creeping back up, maybe a hopeful sign. And mortgage applications, despite a seasonal dip around the December holidays, have held remarkably steady, another sign of strength. But box shipments are still down, running 10 percent below a year ago. And railroad traffic down as well, running 1.3 percent below last year.

So whether economists are reading GDP, TiO2 or tea leaves, where the economy is headed is still a matter of interpretation.

Brooks Jackson, CNN, Baltimore.

(END VIDEOTAPE)

STEPHEN FRAZIER, CNN ANCHOR: Interpretation, indeed. There's really no such thing as a fool-proof economic indicator.

But joining us to talk more about some of the unconventional ones is David Wyss, who is chief economist at Standard & Poor's. He's joining us from New York.

David Wyss, good morning. Thanks for joining us.

DAVID WYSS, STANDARD & POOR'S: Good morning.

FRAZIER: I can understand some of these things, but the indicators do get very strange, like the difference between orders for two-door cars versus four-door cars. What does that mean?

WYSS: The idea of that one is that four-door cars are practical. People buy four-door cars when they are feeling in a practical mood. They buy two-door cars when they're feeling happy and feel they can afford that sporty little coupe. I don't think that works so well, with the growth of SUVs, but that used to be one that people actually kept track of.

FRAZIER: Another one people used to watch how closely is how many folks are going to the movies.

WYSS: People did look at movie attendance. The problem is that that is almost a countercyclical indicator: People go to the movies when they can't afford to do anything else.

FRAZIER: How about beer sales as opposed to wine sales?

WYSS: That's another one we keep track of. Again, when people are happy and have money, they buy wine, and when they're feeling depressed, they sit home and drink beer.

FRAZIER: That sounds like a good way to get rid of depression. But some of these thing look like they could get complicated. We saw that with those cardboard boxes. Still, though, don't people ship inventory to shelves where it sometimes sits unsold?

WYSS: They do, but what this measures are shipments, and this really is a leading indicator of what the retailer is ordering, more than what the consumer is buying from the retailer. But with modern technology, we keep those inventories pretty tight today.

FRAZIER: Can you apply the same sort of thinking that you use on these railway shipments to truck freight delivery and gasoline prices and what that could mean?

WYSS: The problem with the truck freight delivery is that it's a much nearer-term thing. Truck loads moves quicker. It tends to be goods that are further down the food chain. The advantage of the rail deliveries with freight car loadings is that that tend to be bulk goods, that stuff that's sort of early in the food chain. That gives us a longer lead on what the rest of the economy is doing.

FRAZIER: So that you can understand when numbers contradict each other?

WYSS: It does. You have to realize that a lot of this is grasping at straws, but when you're trying to forecast the future, you grasp at any straw you can find.

FRAZIER: Didn't we used to use steel a lot for this kind of thinking?

WYSS: Yes, rolled steel used to be a very strong indicator because that was an early indicator of auto production. You had to buy steel to build buy automobiles, or to buy white goods -- that is, appliances.

FRAZIER: And what, they're not made of steel anymore?

WYSS: Not as much as they used to be. There's a lot more plastic, aluminum, and virtually everything else in a car, to save weight.

FRAZIER: How about mortgage indicators? Alan Greenspan is often citing that.

WYSS: The financial market indicators are critical, especially for the Fed, as they watch them very closely. Mortgage indicators are a good leading indicator of the housing market. When people are applying for mortgages -- you've got to take out refinancing demand here -- it means you're going to be buying that house in another month or two.

FRAZIER: But that looks like things are good, and some of those other indicators that we saw from Brooks Jackson's report say things are bad. So what do you do to weigh them all out?

WYSS: Generally, indicators reflect one segment of the market. Most of the indicators we've talked about are talking about the goods market and about manufacturing. Mortgages refer, for example, to the construction market, which has been booming, while the goods market -- manufacturing -- has been in recession.

FRAZIER: Tough to read them all, but we're grateful for that sense of some of the strange ones that you look at. David Wyss at Standard & Poor's, thanks for joining us this morning.

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