(This column originally appeared in The Guardian)
As someone who keeps a close eye on the economy, I often bump into those strange metrics that people like to write about that, supposedly, unlock the secret of whether or not a recession is looming.
Given what’s going on, it’s no surprise that they are back again. Just last week Bloomberg reported a cut in spending at hair stylists. There’s the “ lipstick index” — in tough economic times, women load up on lipstick instead of spending their dwindling funds on bigger-ticket items. Former Fed chair Alan Greenspan liked to follow men’s underwear sales because hey, when times are tough, we guys are not willing to buy new shorts.
There’s little empirical evidence that any of these metrics mean anything. And it’s next to impossible to gather accurate data to even measure these things. Are you getting a report from the men’s underwear industry? No, I didn’t think so.
The media likes to advertise other well-known metrics like consumer sentiment, unemployment, and gross domestic product as indicators of a healthy or potentially sick economy. Economists like to look at bond yields, “beige book” data from the Federal Reserve, commodity prices, manufacturing activity, shipping indexes and other esoteric measurements to gauge where an economy is heading. But none of these are reliable predictors either. They oftentimes contradict each other or fail to reveal underlying problems (a housing collapse? junk bonds? tulips?) that are the trigger for a recession.
The truth is that no one really knows. Economists and academics and pundits have been historically wrong too many times. Some like to manufacture needless panic so that they can get a spot on CNBC. Will it be tariffs this time? Higher inflation? An AI bubble? Your guess — their guess — is as good as any.
Also, I don’t like to rely too heavily on government data — it’s based on surveys and initial releases are oftentimes significantly revised well after the fact. I’m also not a big fan of data from trade associations. They also gather their numbers through polling and tend to skew towards a rosier view of how their industry is doing. Small business surveys are the worst — I get a dozen a month, all from organizations with their own agendas (“98% of small businesses say AI is critical for them,” reports a tech company that’s introducing new AI features in its product; “80% of business owners support President Trump’s policies,” says a right-leaning commerce association). These aren’t actual reports. But they’re not far off.
Is a recession coming? Here’s my advice: go to the source.
An economy is run on three key components: consumers, capital and labor. And although no one can predict the future, the best place to get a handle on where things are going is to look at actual data from the companies that are driving these three components: retailers, banks and payroll companies.
For example, for the most recent quarter Walmart reported “solid momentum”, Amazon had a 10% net increase in sales and Home Depot’sCEO said: “Our fourth quarter results exceeded our expectations.” So far, so good. But I’ll be looking closely at the next round of earnings releases in May.
What about banks? On 15 April, Citibank said it has a “strong quarter”, JPMorgan said its quarter also showed “strong underlying business and financial results” and that its “fortress balance sheet enables the firm to be a pillar of strength, particularly during volatile or challenging times”. Jon Snow would love that. Wells Fargo said it had “solid results”. Capital seems OK.
And so does the employment picture. John Gibson, the CEO of Paychex, said this month, as part of the company’s release of its Small Business Employment Watch, that “according to our most recent data, the small business labor market is fundamentally healthy and showing no current signs of a recession”. Nela Richardson, the chief economist at ADP, said that “despite policy uncertainty and downbeat consumers, the bottom line is this: the March topline number was a good one for the economy and employers of all sizes, if not necessarily all sectors”.
These are not surveys, polls or extrapolations. It’s actual data that these companies are using to run their businesses and report to their shareholders. Their CEOs are held back via SEC rules from making forward-looking statements. But you can read the tea leaves. If there are cracks forming, you’ll know it here. And if you’re getting this data as soon as it’s released — which is also not hard to find — you’ll be on top of how the economy is doing and where it’s going.
Quoting those funny metrics or raising concerns over the latest government data may be a good way to start a conversation. But it’s not a great way to predict a recession.
