As well as formal surveys, the Bank of England uses offbeat indicators such as Suez Canal traffic and global air freight data
Economists are always looking for new ways to measure growth. There has been the “lipstick index“, for instance, to track splurges on little luxuries in lean times and the scrutiny of dry cleaner turnover to gauge disposable incomes.
Now the Bank of England has outlined how it tries to keep up with global growth thanks to a range of measures, from survey results to more offbeat indicators such as Suez Canal traffic and global air freight data.
Its experience suggests a mix of direct indicators, such as the OECD composite leading indicator – a basket of economic data – and indirect indicators, like that freight data, worked best in the post-2008 crisis era. Since 2010, however, models based on just the export orders index from JPMorgan’s global manufacturing PMI survey have produced the smallest errors, says Kate Stratford of the Bank’s international economic analysis division.
Why does this guessing game matter? Firstly, because policymakers need a sense of worldwide demand while they await the official global GDP and trade data. Those GDP and trade numbers have a significant lag and in many countries, for example, official first quarter GDP numbers are not out till May.
Secondly, the global picture “is an important driver of UK activity”, influencing demand for exports but also confidence and spending decisions, according to Stratford. And so her team provides Bank policymakers with a global “nowcast”, or a best guess of the current pace of quarterly growth of world GDP and trade.
“Nowcasting is especially important when there are large shocks hitting the world economy, as this can give an early steer on how large the real-economy impacts of such shocks are likely to be,” she writes in the Bank’s quarterly bulletin.So economists take note: ditch the glamour of lipsticks and laundered coats for that export orders index.
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