Is business slowing down? A handful of leading indicators may warrant concern.
A theme I’ve heard repeated in many different business conversations is that business is slowing down. Customers aren’t buying as much. Executives aren’t signing contracts. Sales prospects are stalling in the pipeline. Are there economic indicators which could explain this phenomenon? Or are these just anecdotes without a basis in data?
Three leading economic indicators worth paying attention to are the Baltic Dry Index (BDI), Initial Jobless Claims, and the Producer Price Index (PPI). These leading indicators can hint of troubles to come.
BDI tells us the price of shipping containers. If the price goes up, more companies are competing for shipping space. In turn, that means companies are producing more. As a rule, companies don’t buy shipping space speculatively, only when needed. If the price goes down, companies are shipping less, which also means they’re making less.
Initial Jobless Claims are a consumer leading indicator and a business leading indicator. More people laid off means more companies scaling back jobs.
Finally, PPI tells us how much companies are paying for their raw materials. If prices are going up, companies are making more stuff (and thus competing for commodities needed to make stuff). Conversely, a decrease in PPI means companies are buying less stuff and therefore making less stuff.
Combined, these indicators give a sense of the economy with regard to businesses. If all indicators are moving up, businesses are likely growing. If all indicators are moving down, businesses are uncertain or shrinking.
When we examine these indicators, we look at two lines: resistance and support. These are stock market terms; resistance means the recent top levels of any metric, while support means the recent bottom levels. Technical stock traders use these guidelines to determine whether a given metric’s behavior is anomalous or not.
Let’s take a look at the charts. First, BDI:
Above, we see BDI has fallen through its support level. Already depressed, BDI has gone below support to a 5 year low. Companies are shipping less stuff.
Next, Initial Jobless Claims:
We see Initial Jobless Claims have broken through their resistance level, signifying that the overall 5 year trend may be reversing. Companies might be paring back jobs.
Finally, we look at PPI:
PPI broke through a multiyear support level last year, but has declined below its 5 year support level at the end of 2015.
Any one of these indicators could be due to interfering environmental conditions. All three indicators show business conditions eroding.
Is business slowing down? In a nutshell: yes.
We must prepare accordingly.
Adjust our expectations for marketing’s ability to generate leads.
Expect a decline sales’ ability to close in shorter-than-average sales cycles.
Plan to increase spend on advertising just to maintain current levels of activity.
Tougher economic conditions mean stepping up our game as marketers.
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