The 2012 economic forecast

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You innocently ask people you just met what they do, and sometimes the answer isn’t what you expected.

I asked a woman I had met recently that question. The answer: dental hygienist.

Then I asked her what’s the most interesting thing she learned in that career, and she cheerfully answered that if you floss your teeth, you’ll live longer.

As anyone with elementary science education knows, there’s a difference between correlations — certain things seem to be related coincidently but in fact are not, and causation — this leads to that, this causes that effect.

Flossing doesn’t prolong your life, but it’s reasonable to suggest that those flossing their teeth also take care of their health in general and therefore may live longer.

This is the same type of problem with economic indicators, the statistics that are supposed to help us predict our economic future.

Cosmetics sales have often been looked to as an economic indicator, but does an increase in nail polish sales indicate a recovery?

Sales figures are significant since the economy depends heavily on consumption, and since some leading indicators — housing permits — give an indication of how much construction will be undertaken in the near future, and with increased construction, many manufacturing sectors will rev up their production, creating more jobs.

According to economic analyst and commentator Adam Davidson, instead of following lipstick sales which traditionally were considered indicators of a declining economy (as a cheap “pick-me-up”), or Alan Greenspan’s favorite — sales of men’s underwear — which when up foretell economic growth.

How about tracking Champagne sales?

Champagne sales have consistently predicted American income one year later with 90 percent accuracy. The more Champagne we drink, the better we believe our economic future is bound to be. So, 2012 looks pretty good in light of the Champagne indicator.

For years, as owner of the Warehouse Restaurant and Gallery I followed a similar indicator: the number of Christmas parties booked between Thanksgiving and mid-January and the amount of money spent on them. A good end-of-year season told me how my next year would look. Why?

Most employers who throw Christmas parties are not simply thanking their employees for the work they have done in the past year: a bonus check can do the trick! Neither are they all of a sudden enjoying the company of their employees — if they did, they would have partied with them all along and not waited for the end of the year. So, what is the Christmas Party about?

It seems that it’s as much about team building for the next year as for gratitude about the past one. Employers know if they have contracts for the next year, if their marketing strategy has worked, and what changes are needed. They know how many employees will be laid off by Christmas and how many will be hired in January — they all plan ahead. And as they position themselves for the next year, they know if the future looks positive or negative.

If things look bad, companies cancel the party or have a modest luncheon. If things look up, spending an extra $1,000 at a party is in order. It’ll energize the work-force for yet another great year.

Since I sold the Warehouse in 2007, I opened Il Postino in October 2010. That first Christmas season was modest at best, partially because we were new and Christmas parties are booked way in advance. My partner who bought us out and renamed the place Springs Orleans reports almost doubling of sales for the month of December 2011!

2011 turned out to be a flat year in economic terms, with some disappointments (increased foreclosures in some states) and some promising trends (finalizing an expensive war in Iraq). Given the Christmas Parties Indicator (XPI), 2012 will show economic growth across the country. No need for sophisticated economic analyses, just ask restaurants and events centers around the country what December sales are.

Is the XPI as silly an indicator as teeth flossing? Of course it is. Yet, just as people who are inclined to spend a few minutes a day flossing probably also spend extra time daily to exercise and wash their hands, buy organic produce and refrain from trans fats, so one can conclude that spending decisions by corporate America indicate their attitudes toward the future. A correlation no doubt, but an interesting one.

What is even more interesting is the recognition by economists that psychological factors are crucial in the spending trends of consumers — more than 70 percent of all economic activity in the US depends on consumption. Doom and gloom by news media will slow consumption, while rosy stories about the future — especially in a presidential election year — will convince consumers to spend more money and reelect their president.

Is the 2011 XPI an indicator of how companies think about 2012, or a way to reassure ourselves that 2012 will be better? Tune in a year from now for the correct answer.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com Previous articles can be found at sassower.blogspot.com