Business Barometer Service

In addition to integrating corporate culture with strategy and assessing changing market dynamics/industry structure, turns in the business cycle (and industry cycles) are the major tasks of outstanding business leadership that determine success. The latter is also essential for investors. Understanding the past is essential to preparing for the future.

 

Business (or economic) cycles are fluctuations in the movement i n aggregate economic activity as measured by indicators (measures) of economic activity (or exchange). Anticipating these turns in the economy is essential for business success.

 

There are many different approaches to assessing the direction of the economy and sector winners and losers: consensus forecasts, econometric models, and others. One approach is business cycle analysis. Since economic cycles exhibit properties that impact markets and industries differently, business leaders and investors may identify market and sectors favored by the current economic phase. Understanding cycles is important to the business leaders and also to sector portfolio construction. Our bottoms-up, micro to macro analysis detects turning points, and the impact of macro trends on corporate performance is what business leaders and investors are really seeking. 

 

Our Business Barometer Service is a bottoms-up economic intelligence service covering the production side of the US economy. It consists of two reports: 1) the Index of Business Activity, and 2) the Leading Business Barometer (LBB). This service also includes our economic outlook. Both reports are generally released on the last Tuesday of the month.

 

The Index of Business  Activity is a monthly index of the volume of US economic activity that is conceptually consistent with the quarterly index of real gross output (i.e., chain-type quantity index of gross output by industry) for all industries as tabulated by the Bureau of Economic Analysis (BEA). The consistency is due to: 1) our monthly index being calculated using much of the same underlying monthly source data used in calculation of quarterly real gross output, and 2) using a method of aggregation like that of BEA, although we attach greater weight to the wholesale and retail sectors. Using more up-to-date, granular, and high-frequency data (based on supplemental sources from associations, other government agencies, etc.), we can bring the data forward. Because we rely on government data, however, the Index is subject to revisions. This especially affects the goods industries. The underlying approach to this work is a bottoms-up analysis. We currently monitor 155 goods-producing; transportation, utilities, information, and communications (TUIC); finance, insurance, and real estate (FIRE); and services industries. The emphasis is on the production side of the economy. This is a coincidental index of real U.S. business activity, or real gross output. Think of this as a production index for all sectors of the entire economy. As noted in my recent book A History of American Business Cycles, monthly data on the Index of Business Activity are available back to January 1780. Diffusion is the share (%) of the 155 industries that are expanding. Note that current month data are based on high-frequency data and thus provisional. We have a primer -- Creating Market Indicators  --  on how to use this unique data in your planning.

 

The US Leading Business Barometer (US LBB) is comprised of 17 indicators relating to the production of materials and other industries sensitive to cyclical fluctuations; raw material and input prices; selling prices; hours worked; relative equity prices; industry sales-to-inventories; and several broader economic leading economic measures. Monthly data on the LBB are available back to January 1912. Diffusion is the share (%) of the 17 indicators that are expanding. The US LLB leads at business cycle peaks by eight months on average and four months at business cycle troughs. The US Leading Inflation Barometer is based on sensitive goods prices earlier in the supply chain, as well as some forward-looking labor market indicators. The Global Leading Business Barometer (Global LBB) of the global business cycle is based on an aggregation of national and regional leading business barometers which use the same approach and methodologies as the US LBB, but are tailored using data unique to that particular market. These LBBs consist of eight to 10 indicators relating to the production and prices sensitive to cyclical fluctuations as well as other leading economic measures. The Global LBB leads at global business cycle peaks by five months and three months at global business cycle troughs. We have developed LBBs for Canada, Mexico, South & Central America, Europe, Africa & Middle East, China, other Northeast Asia, and South Asia & Pacific. The LBBs for the US, Canada, and Mexico are rolled up into a North America LBB.