A New Leading Indicator

March 15, 2024

Pundits in our business keep their eyes open for important statistics that governments release to the public to measure life of the economy.?? The Federal Reserve and Treasury Departments distribute scores of these numbers weekly, others monthly or quarterly. We have come to know these figures as either leading or lagging indicators.

Two examples of lagging indicators are the Gross National Product--the GDP-- and the Consumer Price Index--the CPI--the gold standard for measuring inflation.? These numbers focus on the past—what has already occurred—rather than what is happening today, or may lie ahead. ?As such, they are old news, and can tell us only about where we have been, not where we are heading.

Meanwhile, other indicators, like the price of gold and the value of the stock market, are current numbers, and more predictive of where we may be heading tomorrow.? We call these leading indicators.?

I've discovered if we open our eyes and start looking closer at our surroundings, we can generate our own indicators to help us navigate a market direction for our own economy.?

Here in Athens, in the urban jungle known as Exarchia—a location that holds a dear place in international news for its anarchists and student protests against police and politicians—we also find the home of small shops owned and operated by local Greeks and, increasingly, by immigrants. ?

Inside buildings covered over with graffiti and street art, proprietors run alternative book stores, bookbinders, vintage clothing stores, fast food franchises, mobile phone services, antique shops and the like, that comprise a standard menu of retailers looking to make a living. In the case of our immigrants, the results often take the form of remittances back home to less fortunate family members in Egypt, Africa, Eurasia and the Near East.

Last week I picked up a pair of pants that I had given to a local tailor in my neighborhood.? The jeans needed some patchwork, mid-leg, and a new cuff at the bottom.? The boys running this shop are quick and efficient.? The three tailors hail from Bangladesh and the owner has lived in Greece for 20+ years.?

I walked into the small shop to retrieve my order, and on the left of the entrance stood dozens of bags of clothes.? I waded through the mountain to find mine.? I asked the owner, “Why so many bags? Business must be good….” His response was terse and somewhat sad. “These bags have clothes we have finished, but?customers haven’t yet claimed,” he replied.? “They’ve been sitting here for weeks, or even months.”

We started a conversation about the reasons for the pile-up.? As a man interested in finance, I listened to his story. “Last year,” he began, “we had to throw out, or give away, over 3,000 bags of clothing we had mended, but people didn't claim.”?? As a rule, these tailors normally toss out bags sitting idle for over a year, or give them away to local charities.?

I did the numbers in my head.? With an average of 7 Euros per item for each piece, he had given away some 25,000 Euros of unclaimed clothing.?? A large figure, when you realize that three tailors and extended family members survive from this store.? Not a happy thought, and the owner was rightfully upset.? His voice was heavy, while his hands flew over his head in a state of desperation.? “What can we do?” he said. What I didn't see was a warehouse of other unclaimed clothes in the basement of the same store. "We're flooded," he cried, pointing down the stairs.???

Realizing these bags represent very small amounts of capital from several thousand neighbors--and this is an important detail when constructing an economic indicator--it struck me many in our neighborhood are making the hard choice either to pick up their mended clothing or to sit and enjoy a drink with a friend in a local bar.? Most of these bags favor the drink. ??

As for the economy, we find yet another indicator—a leading indicator—that all is not well, heading forward.?? Post COVID and a purported recovery in the tourist market are not nearly enough to give locals comfort that the world around them holds much promise. ??

The predictions of experts, and even numbers showing a robust economy ahead, are covered in a patina of graffiti that suggests some animals are more equal than others. ???