Niche Indicators Retake the Stage

How is the US economy really doing? This question continues preoccupying headlines and investors, with the implication being that the answer will tell us whether US stocks’ downturn is a blip or something worse—a sentiment-fueled correction of -10% to -20% or a deeper, longer bear market of -20% or worse as stocks price in real problems. But as often happens when volatility spikes, people are looking for the answer in some unusual places, scrutinizing everything from jewelry sales to college students’ spring break vacation choices. The creativity is amusing, but we don’t think it will give you clues about where stocks—always forward-looking—go from here.

Unconventional and real-time economic indicators have their moments of usefulness. In 2020, for example, they helped investors assess and scale the economic effect of COVID lockdowns. While traditional indicators like retail sales and industrial production come at a lag, restaurant bookings, TSA checkpoint crossings and other similar metrics offered quick insight into how much commerce the US economy was losing. Then, when society started reopening after stocks began recovering, real-time metrics helped the world form reasonable, data-driven opinions about whether the market was right to price in such a quick economic rebound. These indicators weren’t predictive, of course. They told you what was happening in the moment, not what would happen. They weren’t seasonally adjusted. And they were too widely watched to give much of an investing edge. But as a pencil sketch showing whether sentiment was out of whack with reality, they were handy.

So at an intellectual level, we get why people are looking again outside the mainstream. One Wall Street Journal piece highlighted traders who track restaurant spending, high-end jewelry sales and automobile loan application rates—all supposedly indicators of discretionary demand. Others drill down on the Fed’s regional economic reports, called Beige Books (for the color of their cover, not their blandness). Some economists track online job listings. Meanwhile, a New York Times piece profiled people who take a more anecdotal approach, reading into things like the amount of sequels hitting the theaters, people’s eating habits and whether pop music is slow or up-tempo—all reminiscent of the funky indicators of old, like hemlines and lipstick sales.

Tracking these things can be fun. But we doubt they yield much useful insight. They will give a little bit of “what,” but “why” is often more important, and you mostly won’t get it from these niche, narrow examples. The amount of job postings on sites won’t tell you whether companies are actively trying to fill those positions. Bar and restaurant spending tallies don’t tell you how households are spending on discretionary goods. Nor do jewelry sales tell you if people are cutting back elsewhere. The Beige Books can be interesting but are often anecdotal, and production has a lengthy lead time.

As for the quirkier indicators trending on social media, we don’t think there is a there there. People surmise you get a lot of movie and TV sequels and remakes when money is tight and studios don’t want to take risks, but whatever is hitting audiences now was greenlit years ago, in all likelihood. Some claim slow songs tend to dominate in recession years, which is entirely anecdotal and reeks of confirmation bias. Some certified upbeat pop bangers came out in 2008, and that slow number from A Star Is Born was everywhere in the non-recessionary 2018. (And that movie was a remake of a remake of a remake.)

The drawback of all these niche lenses from an investing standpoint: Markets are forward-looking, pricing in the likely gap between expectations and outcomes over the next 3 – 30 months. The economy is a part of that, but the swing factor tends to be business investment, not consumer behavior. Even if some of these funky indicators offer genuine insight about US consumer health, whatever trends they document would be a response to the economic conditions unfolding around them. Markets will have already priced this in and moved on, looking to a future that today’s pop songs, movie sequels and job postings can’t hint at.

But there is a bright side. The heightened scrutiny helps shed light on sentiment. People wouldn’t be dwelling on all these untraditional indicators if they weren’t anxious about the economy’s direction. The focus tells us expectations have fallen, echoing what surveys and other indicators have shown. This strikes us as a classic correction hallmark, and it lowers the bar reality needs to clear. Volatility is still impossible to time, and corrections both begin and end suddenly, at any time, for any or no reason. But skepticism’s increasing prevalence suggests this bull market still has a wall of worry to climb.