It's easy for Denise Iorio to see the difference between
yesterday's boom and today's near-bust. Clients who once
wanted sizable Web sites to promote their films are now scaling
back to just a page or two, says the co-founder and executive
producer of Movie Engines, a Los Angeles Web and film development
company. "The change from last year is dramatic," says
Iorio.
Curious about when the economy will turn around, everybody is
closely examining the economic signs. Iorio, for example, takes the
pulse of her company's Hollywood colleagues, customers and
suppliers to gauge when and how the economy will shift back into
high gear or, perhaps, slow further.
But business owners shouldn't rely on hearsay. Entrepreneurs
are surrounded by data that reveals the economy's direction. So
what indicators should you follow? And what do they mean?
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What to Track
Start by trying to get a feel for the overall economy's
direction. The most salient measure is the gross domestic product,
which represents the total value of goods and services produced in
the United States. GDP is calculated quarterly by the federal
Bureau of Economic Analysis. Look for changes in the annual rate of
growth to discern the economy's direction. In the last quarter
of 2000, for instance, U.S. GDP increased at an annual rate of 1
percent. That was down from 2.2 percent in the third quarter and a
sign of a slowing economy. (Get the latest GDP estimates at
www.bea.doc.gov.)
You can also track industry indicators. Trade associations,
government agencies and private research organizations are sources
for industry data. For instance, entrepreneurs in home construction
follow the Census Bureau's count of privately-owned housing
starts.
Checking Consumers
There are many other indicators out there-much more than you can
reasonably expect to follow. Which deserve your attention? Those
that predict the behavior of consumers, whose purchases drive
two-thirds of the economy. On that score, the stock market is
getting more attention than ever before, says Edmund A. Mennis, a
Palos Verdes, California, economic consultant and author of
How the Economy Works (New York Institute
of Finance).
"The critical issue is what consumers are going to
do," Mennis explains. "And a large part of that depends
on the stock market." Stocks, of course, fluctuate widely in
the short term, but over a few quarters, directions can be
discerned. And you'll want to track more indexes than just the
Dow-the Standard & Poor 500, for example, is also
important.
Other consumer activity indicators include the Census housing
report and the automobile sales figures available from the BEA.
These two big industries tend to dominate U.S. consumer activities.
Another is the Consumer Confidence Index compiled by the Conference
Board, a New York City business organization. In May, consumer
confidence rose to 115.5 from 109.9 in April, which is a sign of
possible improvement. (Get Consumer Confidence Index news at
www.conference-board.org.)
Summing Up Signs
No matter which signs you decide to study, never forget that
they're all fallible. Measures fluctuate unpredictably over
short periods, so you should examine indicators for several months
before reaching conclusions about economic trends, says Bernard M.
Markstein III, president of Markstein Advisors, a Phoenixville,
Pennsylvania, economic consulting firm. "See if there are
special circumstances," he adds. "Even a bad winter storm
can affect numbers."
While it's not always easy, watching the economy is a
worthwhile pursuit. "Everyone else is paying attention,"
Iorio says. "And they are making choices as to how much they
want to spend, how much they want to do and how many chances they
want to take."
Austin, Texas, writer Mark Henricks has covered business and
technology for leading publications since 1981.
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