Economic Future in Eye of the Beholder

NEW YORK — Although economists, bankers and analysts rely on a variety of economic indicators to gauge the climate at retail, in the end it’s their own powers of observation that may prove the most useful.

Industry experts say nothing beats heading to the stores to see floor sets, touching and feeling the fabric and watching what consumers buy.

Of course, economic indicators serve a purpose, as they can hint to what may be weighing on the consumer psyche. But not all indicators carry the same weight. While the Conference Board’s monthly consumer confidence reports provide an after-the-fact illumination on what happened last month, it is the Expectations Index that gives better clues about what may be in store down the road, analysts said.

And while consumers can say in surveys that they intend to keep their pocketbooks open, it may be rising gasoline prices that have a greater impact on keeping purses shut, which is why industry analysts and economists often head to stores to see what’s going on.

“For me, I have to look at what people are buying to gauge the mood of the consumer,” observed Walter Loeb, retail consultant at Loeb Associates. “Are they buying just basics or are they buying fashion? Are they even in the mood to buy? While gasoline prices can dampen the mood, and weather can affect what’s actually bought, at the end of the day it is still all about fashion. Most importantly, I need to see the fashion and the message that the fashion gives, which tells me whether there’s any urgency to shop.”

For Gary Wassner, president of factoring firm Hilldun Corp., his key indicator is the feedback he gets from both retailers and his clients.

“We try to keep our finger on the pulse of what’s happening in the stores around the country. We can get a good read from the information in the invoices we send out, whether it is from an on-time payment to whatever the reason is for a late payment.” Wassner said.

The factor also said feedback from clients and retailers often tells the bigger story. “The feedback is weekly, and it is industry-specific and client-specific. With all the information from different regions in the country, we get a pretty good feeling of what’s happening in retail in different parts of the country,” he said. “As for the goods in the stores, it helps if an economic indicator says that people are confident enough to spend. What’s more crucial for any of my clients is when a retailer says to me, ‘I like the merchandise. I can’t keep the stuff in the stores.’ That says to me the goods are selling.”

Jennifer Black, fashion and retail analyst at Jennifer Black & Associates, says she tends to look at everything. But it’s usually the merchandise that takes precedence over other indicators.

“I look at everything from housing starts to interest rates. But I also sit on the Economic Advisory Council in Oregon, so I get economic data all day long. I see information on everything from chip prices to the tech sector. The problem with certain information and data, such as consumer confidence, is that it is really like looking at what’s happening from the rear-view mirror. Sometimes it helps, because you can get information about general trends over a long period of time,” she said.

Black spends much of her time traveling from one part of the country to another, walking into stores and observing layout, store sets and what consumers are taking home in their shopping bags.

“As good as all that data from the indicators may be, there’s nothing out there that beats being in the stores and watching how people respond,” Black explained. “In retail it all depends on the product. If a store or vendor doesn’t have the right product, it won’t matter what is the economic environment. Chico’s has done well no matter where the economy is at, and that is partly due to the firm’s ability to have the merchandise that consumers want.”

Black said she also tries to keep close tabs on demographics, as well as “how much competition there is in a certain region or retail sector and who else is doing well.”

The traditional indicators Black follows include stock indices; mall traffic; geopolitical events; housing starts; unusual weather patterns; commodity prices; unemployment numbers; currency swings, and consumer confidence.

As a former economist, Bernard Sands analyst Richard Hastings also keeps a close watch on the major economic indicators.

“I like keeping tabs on the key economic indicators, like looking at outstanding home equity loans and chain store sales, which I think is the best indicator for seasonal discretionary items,” the economist-turned-analyst said.

He said he also likes keeping an eye on food sales at Costco and Sam’s Club. “With food taking a bigger portion of the share from consumers’ wallets, those food purchases are altering the results at some chains,” he said.

On the investment front, Bill Rutherford, former treasurer of the state of Oregon and president of Rutherford Investment Management, considers the price of crude oil a key indicator these days when trying to figure out the consumer psyche. This helps his firm determine which companies are worthy of investment. Rutherford Investment holds stakes in Jos. A. Banks and Avon.

“Of all the key consumer numbers, oil is a big factor right now. It has gotten so high. We normally don’t pay attention, because when it is down to $20 or $30 a barrel, it’s just another number. Now that it is so high, it has got to impact consumer confidence, particularly as we see home heating bills on the horizon as we head into winter,” Rutherford said.

Paul Altman, vice president at investment banking firm The Sage Group, noted that on the mergers and acquisitions front, keeping tabs on certain economic indicators can provide hints on which potential buyers and sellers might be good candidates for a marriage, as well as how those marriage contracts get drawn up.

Emmanuel Weintraub, a consultant whose clients include many retail and apparel firms, doesn’t pay too much attention to the indicators and focuses his attention more on the unemployment rates when he’s trying to gauge what may be in store for consumer spending.

“You know, nobody really knows how these indicators are constructed. The core inflation rate excludes all the things that consumers are busy buying, like eggs and gas for the car. Then if you own a car, the insurance rate is up. I’m interested in employment growth as the important number. If the jobs front is growing and pay is rising, then consumers will continue spending, because they feel good about their future,” observed Weintraub.