Economic indicators snapshot, July 2014

Every now and again, something bugs me, a little voice in the back of my head that says, “Go take a look at some other data sources to see a bigger picture”. This stems from my years in financial services, where every chart held the potential to be the insight you were looking for to get an edge. That little voice comes and goes – sometimes, I’m so immersed in the world of marketing that it’s quieted. Other times, when I have some breathing room and thinking time (like on long holiday weekends), the voice reasserts itself.

I decided to listen to the voice and check out the landscape. Let’s see what the financial runes tell us.

On the one hand, initial jobless claims appear to be near a bottom. All other things being equal, this is generally a good thing:

Initial_Claims_-_FRED_-_St__Louis_Fed

So why doesn’t it feel so good when you head out into the real world, when you walk down the streets of your town?

Alternate_Unemployment_Charts

Part of the reason may be because there are a lot more people who are not fully utilized. The official unemployment rate is closing in on 5%, but the U-6 measure of everyone who isn’t being used to their fullest capacity (and thus not hitting their fullest earning potential) is still significantly higher, around 12%. If you look at pre-1984 long-term discouraged workers (people who are no longer counted anywhere), the number of people who aren’t doing as well as they could be is nearly 23%.

Then there’s the other side: the expenses. There are two semi-permanent invisible taxes on us right now (at least in America):

Europe_Brent_Spot_Price_FOB__Dollars_per_Barrel_

That’s oil. Brent Crude has been hovering over $100 a barrel for more than 3 years. Generally speaking, take Brent Crude and divide it by 4 and you get retail gas prices, which have indeed been in the $3.50 – $4.00 / gallon range for quite some time. That’s an invisible tax on everyone who drives or rides to work, and an invisible tax in the form of price boosts to everything that requires petroleum products to be made or transported.

Here’s the second invisible tax, a side consequence of the persistently high oil prices:

Rough_Rice_Monthly_Commodity_Futures_Price_Chart___CBOT

That’s the price of rice, rough rice by the Chicago Board of Trade, the CBOT. The price of one of the grains most eaten in the world has been consistently high for about the same period as Brent Crude. When the price of food goes up, it imposes another invisible tax on your wallet. It’s not just rice, either:

Commodity_Food_and_Beverage_Price_Index_-_Monthly_Price_-_Commodity_Prices_-_Price_Charts__Data__and_News_-_IndexMundi

That’s all food and beverage commodity prices. Between energy and food, life is more expensive.

These invisible taxes impact our ability to buy stuff, as shown here:

Real_disposable_personal_income__Per_capita_-_FRED_-_St__Louis_Fed

Real disposable income is leveling out, and has been for years. If you did a basic trend line from 1990 to 2005 and extended it to 2014, real disposable personal income should be about $3,000 more per person than it currently is. Those invisible taxes are taking their toll.

Don’t forget about real taxes, too:

Personal_current_taxes_-_FRED_-_St__Louis_Fed

Food and energy are eating the consumer from the top, while taxes are eating the consumer from the bottom. With this much chewing up the wallet of the average consumer, it’s no wonder other indicators are starting to look soft. People just don’t have the money to buy stuff like they used to. For example, houses:

Housing_Starts__Total__New_Privately_Owned_Housing_Units_Started_-_FRED_-_St__Louis_Fed

Housing starts are still recovering from multi-decade lows. The last time the housing market was this soft was in the early 1990s.

The other place the wallet’s weakness is showing up is in the Baltic Dry Index (BDI). For those who are new, BDI is the cost to ship stuff by sea on big container ships. It’s a good leading indicator because companies don’t buy up space on container ships unless there’s product to actually ship. What we see here is that BDI has been soft and remains soft. In fact, BDI is on the decline right now, which means the economy overall might be stalling.

BDIY_Chart_-_Baltic_Dry_Index_-_Bloomberg

The only saving grace in all of this is if you’re a B2B marketer. Corporate profits are at an all-time high, so your job as a B2B marketer is probably safer than most:

Corporate_Profits_After_Tax__without_IVA_and_CCAdj__-_FRED_-_St__Louis_Fed

What picture do all of these indicators paint? If you’re looking to the consumer for growth, it’s probably not going to happen for a long time. If you’re a B2C marketer, chances are things have been tougher than normal the past few years, and there’s no sign of pressure being released on the consumer. If you’re a B2B marketer, chances are you’re doing better than your colleagues on the B2C side of the house.

Keep an eye on BDI if you’re a B2C marketer especially! It’ll tell you about the upcoming holiday season and how weak or strong the consumer is likely to be. Right now, things are not looking great for a strong 2014 close for consumer B2C.


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Leveling the playing field for economic growth

A lot of people have wondered and speculated about how to achieve more economic equality, about how to level the playing field so that the 1% don’t continue to dominate the economy. While this is not a comprehensive solution, Blizzard Entertainment may have given us part of the solution.

For those who don’t play World of Warcraft, there’s an in-game market called the Auction House, or AH. People can buy and sell their fictional, pixelated wares to each other with very few constraints. It’s a free, open market in which people can attempt to create monopolies, control trade, work out pricing deals, everything you’d expect from a nearly rule-free capitalist marketplace. As in real life, there are those folks with access to better resources, better tools, better information, and more time who dominate the market, the 1% of the Warcraft economy. They have squeezed out much of the marketplace for the casual buyer or seller, offering their goods at low prices and using superior techniques and tools to always be the #1 sellers in their industries.

For consumers, this is a great deal. They can get their goods at the absolute lowest prices that the market can bear, because the moment a casual seller posts something for a lower price, the tools of the 1% immediately repost an item at a lower price. The consumer wins.

For the casual seller, this is not such a great deal. If you hope to make any gold in the game, you need to learn the various systems and tools to even be marginally competitive, and you still may not even keep up because you don’t devote hours a day playing the markets in the game.

On June 22nd, Blizzard’s Auction House APIs were being hacked. Some clever hackers figured out how to rob people, so as a precaution, Blizzard turned off many of the APIs for their Auction House. This didn’t affect in-game play at all – people could still buy or sell items without restriction. However, the API shutdown broke many of the tools that the 1% use on a regular basis:

US Earthen Ring Alliance - The Undermine Journal

This had an immediate impact on the markets in-game. The 1% weren’t relisting their auctions the moment they were undercut by a casual seller. They weren’t able to scan for abnormally low priced deals to buy out and relist at higher prices. They weren’t able to do anything that the casual seller couldn’t do in the in-game market. What happened?

For the casual seller, profits soared. For the casual seller, sales increased drastically. Margins increased. Being undercut decreased significantly. In my own listings, my profitability and sales volumes immediately increased by 400% overnight. The number of items I was undercut on in a 24 hour period dropped 60%.

What’s more important is that Blizzard’s API shutdown didn’t change the equality of outcome – no income was redistributed. No profits were confiscated. What the shutdown did was change the equality of opportunity, letting more sellers into the market and shutting down a technological and financial advantage that the 1% had over the 99% of the player base. When the APIs come back up, of course, the 1% will regain their advantages, but the short term market movements from leveling the playing field are undisputable.

Could something like that be done in real life? Inquiring minds want to know.


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Why the Guild Wars 2 Economy Isn’t a Moneymaker

Guild bank

After having played Guild Wars 2 for 2 weeks, I’ve found a rather interesting comparison between its in-game economy and the World of Warcraft economy. In World of Warcraft, there’s a limit of 32,767 players who can participate in your faction’s Auction House, the in-game market. On some Warcraft realms, that number is significantly lower. Thus, the Warcraft Auction House often has areas of shortages in certain materials that are essential. There is significant scarcity, which creates opportunity for enormous profits, even as a low-level character, if you are willing to do the work to obtain those items and place them up for sale.

In Guild Wars 2, the Trading Post (the Auction House equivalent) is a global, shared marketplace with up to 3 million participants. Every item in the game is a commodity in high supply, often with dozens or hundreds of sellers constantly undercutting each other, sometimes below their cost of acquisition.

What does this mean for the entrepreneurial player? As of right now, Guild Wars 2 is a far more hostile place to try to earn some coin through speculation. The shared marketplace means that except for a handful of very high-end items, there is effectively no scarcity in game. No scarcity means that the price of goods eventually falls to the cost of production of those goods. The opportunity for arbitrage – obtaining a good at one price and reselling it at a different price – is extremely narrow.

For the average player, this is a good thing. It gives those players the opportunity to obtain goods at close to production cost, which means that leveling up a character’s trade skills doesn’t take an exorbitant amount of gold. For the entrepreneur, however, there is little opportunity to be found beyond high-volume, low margin trades and temporary, small swings in pricing. One forum poster joked that to make any money as an in-game entrepreneur, you need the skills and tools of a Wall Street trader, and you’re better off just gambling on Wall Street and taking your profits to buy in-game coins.

What can you learn from this? If you’re in a market with no scarcity at all, you’ve got a problem unless you are consistently the lowest cost provider. That’s why social media has become increasing difficult a place to work in: the general market is so overcrowded that there’s no scarcity of any kind. In order to make it useful to your business, you’ve got to segment out a portion of the market and identify the scarcity in it, then play to that particular scarcity in order to be effective, in order to make some money. If you don’t, you’re competing against a global marketplace where content is the commodity and it’s not the highest quality that wins, but the lowest cost of production. This, by the way, also explains why there’s an enormous river of crap being published every day.


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