Gene Marks shares the most important economic metrics to keep an eye on.
By Gene Marks
I WRITE ABOUT the economy for a few national publications. But I’m also a certified public accountant and a business owner. Like all business owners, I’m very interested in where the economy is heading. So are my clients. The smartest business leaders I know are always doing their best to look ahead so that they can make hiring, spending and investment decisions. So when it comes to tracking the economy I’ve learned to rely on real data from real companies or organizations, as opposed to surveys or data published by the government which is frequently – and sometimes significantly – revised.
What metrics do I follow closely? Here are my five favorites.
ISM Manufacturing and Service
The Institute for Supply Management is an organization of purchasing managers who work either in the manufacturing or services industries. Each month the ISM gathers data from its members mostly around their current and predicted purchasing behavior, as well as other key metrics about their companies. This data is then used for two metrics: the Manufacturing and Services Purchasing Managers Index. For me, this is a real-life look at where these two massive industries stand and if they’re trending towards growth or contraction.
Baltic Dry Index
This little-known metric is followed closely by many economists I know. It’s a great gauge of global shipping. Why? Because the Baltic Sea is one of the world’s busiest shipping corridors. The Baltic Dry Index is a daily measure of the cost of freight for shipping items through the Baltic Sea. If it’s rising, that’s an indication that there’s more demand for shipping, and if it’s falling, that means that global shipping volume is dropping. It’s a great way to gauge how the overall global economy is doing, and for me and many others, it has been a reliable resource for predicting downturns in the past.
NFIB Small Business Optimism
I’m not a huge fan of surveys – government or otherwise. But of all the surveys I’ve seen the Small Business Optimism Index from the National Federation of Independent Businesses is one of the most reliable. I like it because it’s been around for over 50 years and its methodology has changed very little. The survey relies on data submitted by thousands of its members – small businesses – that address revenues, profitability, hiring, investment plans and other factors. The NFIB is made up of small businesses across many industries and generally represents employer-owned firms that have been in operation for at least a few years, as opposed to startups, freelancers and micro- shops that are featured in other small business surveys. It has accurately tracked economic booms and declines. The reason is that small businesses in the U.S. make up about half of our country’s GDP and employment, so their overall sentiment is a strong indicator of where the winds are blowing.
AIA Billings Index
The residential and commercial real estate construction industry is one of our country’s largest sectors, employing millions of individuals and providing work for countless small businesses up and down the economic food chain. There are plenty of real estate indexes, surveys and reports. But for me, the most reliable over the years is the monthly index of billings from the American Institute of Architects. Architect billings represent an important leading indicator of the construction industry. Firms and wealthy individuals hire architects for projects that will be started usually six to nine months in the future, so when I see billings go up, that tells me that the industry overall is on the upswing.
CEO Reports
Any economist will tell you that an economy is primarily made up of three things: capital, consumers and jobs. So when it comes time to get actual data about an economy where best to turn to? The CEOs of the companies that do these exact things.
Capital comes from banks. So each quarter, I pay close attention to the earnings of the country’s largest banks like JPMorgan Chase, Wells Fargo and Capital One. I listen to what their CEOs say in their earnings reports and any public interviews they give. Here I learn about credit conditions and loan demand both from the commercial and consumer sectors. When you listen to bank CEOs talk about their business you can quickly tell whether or not their sentiment is positive or trending negative.
Consumers spend at retail stores. So I also listen to the CEOs of our largest retailers like Walmart, Target and Amazon. They tell me how the demand was during the previous quarter and give their thoughts on overall consumer spending. If they see demand softening, you’ll find out in these reports well in advance of any government report or survey.
Finally, for jobs data, I pay close attention to the country’s two largest HR providers: ADP and Paychex. Each month they release reports on wages, salaries and employment demand.
This is real data from real companies, not survey data, responses to questionnaires or a government-issued report that gets revised multiple times. This is information that industry leaders are reporting to their shareholders and to the public. It is based on what is actually happening with their customers and with their businesses. The CEOs of these companies are restricted by the SEC from making forward statements, but that’s OK – you can still get a very good insight into the current economy and the future just by listening to their reports.
I admit that these aren’t the only metrics I look at each month. I also like to follow the economists at Calculated Risk, VettaFi and Trading Economics for overall economic data. I also like to read publications like The Wall Street Journal and The Financial Times daily to keep track of other things – both foreign and domestic – that could impact our current economy. However, I still regularly go to my top five metrics listed above as my main indicator of how the economy is doing. They’ve never let me down.
About the Author
Gene Marks is a best-selling author and speaker who is presenting at MHEDA’s 2025 Convention. Through his keynotes and breakout sessions, Gene helps business owners, executives and managers understand the political, economic and technological trends that will affect their companies and – most importantly – the actions they can take to continue to grow and profit.
