The Insider's Guide to Economic Forecasting

As one might expect, this indicator has been dismal for quite a while, offering little comfort that employers will be adding to their payrolls any time soon. Between July 2002 and April 2003, a total of 100,000 temp jobs were cut. If this drop-off had been occurring while total employment was increasing, we'd all have had reason to celebrate (a sign that companies were replacing temp workers with permanent ones), but during the same period, total payroll employment fell by 299,000 jobs.

The first glimmer of hope came in May as temp employment rebounded by 58,000 jobs -- the largest one-month increase since October 1999. A central question is whether the impressive one-month showing on temp jobs in May is an aberration, or whether it is a signal that the labor market has already hit the bottom and is now headed in the right direction.

Another indicator to watch in the labor market is the number of people who'd rather be working full-time but have had to settle for a part-time job. One might think these folks would be considered half-unemployed in calculating the overall unemployment number, but they are not. In addition to the 9 million workers classified as unemployed in May, there were another 4.6 million workers who were classified as "part-time for economic reasons." That represented a 39% increase from the level recorded in March 2001.

Data: Bureau of Labor Statistics data on part-time workers for economic reasons is at http://www.bls.gov/cps/home.htm. Scroll down to "Historical data for series in the monthly Employment Situation news release" and look for table A-5. The BLS compiles data on temporary jobs, under the label "Temporary Help Services" at www.bls.gov/ces/home.htm. Data from the most recent month is included on the "Employment Situation Summary." For a historical series, click on "Get Detailed Statistics" and choose the "Historical Data for the 'B' Tables," then click on "Employees on nonfarm payrolls by industry sector" and scroll down to find "Temporary Help Services."

Wal-Mart Sales

The workhorse of the precarious recovery over the past year and a half has undoubtedly been the American consumer. Despite a continual stream of gloomy economic news, shoppers have kept right on shopping and, in so doing, have kept the economy out of more serious trouble. Economists have been watching whether consumers will continue propping up GNP until businesses decide that they also want to buy more stuff. A good set of binoculars through which to view the health of consumer spending is retail sales at major chain stores like Wal-Mart and Sears. There are a number of ways to get information about their stores' performance.

Same-store sales are the key number for these big chains. The figure measures sales growth at stores that have been open for at least a year. By excluding sales made by newer stores, it keeps a company's expansion efforts from distorting the broader economic picture.

It was Mark Zandi, the chief economist at the influential consulting firm Economy.com, who told me I ought to keep especially close tabs on the same-store sales at Wal-Mart, which the company makes available at its website. Zandi told me that looking at same-store sales is "like having a box-seat view on what consumers are doing." As the world's biggest corporation, responsible for an astounding 2.3% of U.S. GNP in 2002, there's truth to the idea that where Wal-Mart goes, so goes the economy. Wal-Mart sales have become increasingly important in recent months as they continue to perform well compared with other retailers. Indeed, Wal-Mart has been a large factor in holding total retail sales above water. Average year-to-year same-store sales in 2003 excluding Wal-Mart have been only 0.7%. Any further weakening in Wal-Mart's sales could be an important sign that the American shopper is beginning to have trouble as the solo pillar of the economy. Most recently, Wal-Mart reported sales for May 2003 of $18.95 billion, an increase of 10% from $17.23 billion in the prior year.

You can also find data for same-store sales across 76 major chain retailers by looking at the Bank of Tokyo-Mitsubishi Retail Chain Store Index. The index seemed to be making a recovery in the beginning of 2002, with sales for each of the first six months averaging year-to-year increases of close to 5%. But sales have dropped off since June 2002, fueling fears that consumer demand may be mild. So far in 2003, average year-to-year sales growth has been a lethargic 1.5%.

Data: The Bank of Tokyo-Mitsubishi Retail Chain Store Index is released monthly at www.btmny.com/reports/research/comment/Chain_Store_Sales.htm. Click on the most recent month's retail trends report. You can follow weekly same-store sales for Wal-Mart at its corporate website, www.walmartstores.com. Look for "Sales and Summaries" under the News Releases section.

You might want to follow year-to-year sales receipts at Wal-Mart stores.

Commercial and Industrial Loans

A good way to gauge business investment trends is to check bank lending. Commercial and industrial loans (CIL) is a particularly important indicator because such loans are often used by small and medium-size businesses to finance inventory and materials. I happen to know that CIL is another favorite statistic of Alan Greenspan. CIL acts as a "you know you're out of the woods when..." indicator. Indeed, the Conference Board, a not-for-profit group that conducts market research, uses CIL as a key component of its "lagging economic indicators" index (the cousin of its better-known index of leading economic indicators). Viewed correctly, though, CIL can also be a leading indicator. In the past two recessions, the volume of commercial and industrial loans continued to fall even as growth revived. For example, CIL bottomed out in December 1993, two-and-a-half years after the end of the 1991 recession. In the current slowdown, CIL is continuing a two-year decline: In April, CIL was down to $943.5 billion -- its lowest level since October 1998 -- from a high of $1.1 trillion in February 2001.

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