Some weeks there is a lot of news to cover while others there is noticeably less. Despite the low volume of news this week, the news that did come out moved the needle considerably. Notably, it was Jerome Powell’s speech at Jackson Hole today that was the catalyst for the substantial move higher. What changed? In a nutshell, his position on inflation has softened and the ramifications may be seen at the Fed’s September FOMC meeting.
Let’s start with Jackson Hole, which is an annual event hosted by the Federal Reserve Bank of Kansas City. It brings together central bankers, policymakers, economists, and academics to discuss economic issues and trends. It is often seen as a platform for Fed officials to signal potential shifts in monetary policy, and today’s keynote speech was no exception. In his speech, Chairman Jerome Powell suggested interest rate cuts are coming, but not because President Trump demanded it. The takeaway is that the US labor market is waning which puts the economy at greater risk for cracking under pressure. Investors clearly like interest rate cuts as they tend to reinvigorate the economy and drive stock prices higher. However, it would be wise to remember that rate cuts also indicate a weaker economy and while today’s news is perceived as a victory of sorts, the sentiment could turn next month when actual data reflects said weakening.
In company news, we had a slew of retailers report Q2 earnings including Home Depot, Lowes, Target, TJ Maxx, and Walmart. While they had mixed results, the common theme is that they are all dealing with higher costs in one form or another. While many are trying to absorb some portion of those costs, companies like Home Depot and Walmart stated they will have to begin passing along some of the cost increases. As an aside, do yourself a favor and please don’t buy frozen shrimp at Walmart. It was reported this week that some of the shrimp, including that sold in Ohio, may have been exposed to radioactive material. I wish this was the story of the week but alas it is more a public service announcement.
In other news, there are economic indicators which are less well understood but may nonetheless have some merit. While I don’t necessarily subscribe to all these metrics, they are worth mentioning. The following are nine of these “alternative” indicators.
- The hemline index: Coined a few years before the Great Depression, it suggests the higher women’s hemlines go, the healthier the economy. Recent studies demonstrate this may be a lagging indicator.
- The men’s underwear index: Not necessarily a luxury item, men typically buy underwear when times are good. A slump in sales often indicates times are tough.
- The lipstick index: According to Leonard Lauder, of Estee Lauder, women spend more on cosmetics and small luxuries, foregoing more expensive purchases, when times are tough. An increase in lipstick sales is a leading indicator of recession according to this anecdotal evidence.
- The Big Mac index: Established in 1986, this index measures international purchasing power using a hamburger as a proxy. This is more a play on currency than economic health, but it indicates how far a dollar goes which does have economic ramifications.
- The recession index: The idea here is to count the number of articles in The New York Times and The Washington Post in which the word “recession” appears. The higher the number, the more likely a recession occurs.
- The cardboard index: This one is simple. The more cardboard boxes being produced, the better the economy will perform. This is especially important with the advent of online shopping.
- The Christmas price index: PNC Bank came up with the idea of measuring the price of the items found in the lyrics of “The Twelve Days of Christmas.” It seems to reveal interesting trends in the price of gold and overall labor.
- The champagne index: Popping bottles makes sense when times are good, but people typically feel less celebratory when times are tight. There appears to be a loose connection between champagne and a strong economy.
- The RV index: It appears when people are confident the economy is healthy, they spend more. Considering, for many, an RV is a luxury item which runs from $10,000 to $200,000, it makes sense this could be a proxy for the health of the economy.
While I don’t necessarily believe in the predictive power of many of these indicators, they could prove insightful from time to time. Whether they are leading or lagging indicators is up for debate. However, now that you know what to look for, you too may see some of these indicators that hide in plain sight. Now you know.
Bruce J. Mason, MBA
