Tuesday, August 13, 2013

Revisiting indicators.

Counting what counts, as seen by the initiator of financial indicators in broadcasting in South Africa.

The recent Moneyweb article on “What the indicators are not telling us” sent me on a nostalgic trip to my days in broadcasting.

At that time, until about late 70’s, public broadcasting was a very minor player in economic news. The only dedicated business news broadcasts were 5-minute bulletins at 9.10 pm on the two non-commercial channels. They were to become the springboard for a separate economics news desk feeding news bulletins and talk shows on multiple outlets on Radio and Television and producing two Television shows, of which “Diagonal Street” was one.

I use the term “initiator” perhaps too modestly on the one hand and too conceitedly on the other. Regarding the former, it was more of a pioneering effort in a stubbornly resisting environment, and the latter: the quick growth of the economics department was largely due to a very dedicated team of professionals with whom I had the privilege to work in those formative years.

The indicators were first introduced in short news bulletins, where air time was jealously protected. In convincing the controllers of the validity of regular economic slots, we could not rely solely on examples elsewhere, and intense lobbying and discussions with leaders from various sectors, bankers, economists, brokers, the Treasury and the Reserve Bank clearly isolated the most important to a broad South African audience and how they in turn should interpret them in their daily decision making.

This is not purely a reflection on my past, but rather examining an important issue raised by the Moneyweb article which questioned their relevance today; what should be included and why. At the same time it may help you in applying the information in your own decisions. Our research and given the constraints of air time and target audience led to a number of pre-requisites and disciplines which arguably are still applicable today.

· They have to be brief and concise;

· they should be restricted to a few only and

· they have to be relevant to the country as a whole and not only to a specific sector or interest group.

Instead of the classic distinctions between leading, lagging and coincident indicators, it is more useful to think of them broadly as those that influence economic trends, and those that merely confirm or reflect those trends. It is perhaps a misnomer to call the daily and weekly prices and indices “indicators” because they clearly have to be maintained for a while to influence economic direction. It is also far more important to know what causes movements than to try and extrapolate their future impact. If you know and understand that then you have more than a casual grip on your economic circumstance.

Most economists will rely on monthly or quarterly figures to determine trends, and I’ll deal with those separately in a future article.

Our hunger for immediate information that influences future trends makes an absolute case for daily indicators. Context, reliable commentary, and authoritative interpretations should help even the less aware in assessing their trends and impact. An important rationale for daily indicators in the public media is to enhance a sense of awareness around their importance, and hopefully create a desire for further understanding. At the same time they should offer the informed a quick and concise alert system of developing events.

So what should we include and why?

Interest Rates.

A serious omission in the daily broadcasts today (and surprisingly elsewhere) is the debt markets. Foreign capital movements are our Achilles heel and these will be reflected in the daily movements on both the short term money markets and long term capital markets where debt is actively traded and new paper auctioned. We included both in our original bouquet: the money markets through the B.A. rate, and the capital market through RSA long term bonds. I cannot explain why these have disappeared, but any observer of these rates will have an early detection of the capital flows and trends.

Current movement in all the rates can be found on this page maintained by the Reserve Bank. SABOR on the money markets and the 10 year and longer daily average bond yields are probably the more telling. Despite all of the instruments at its disposal, the Reserve Bank cannot maintain a repo rate that does not reflect the pressures from these markets.

Exchange Rates.

An absolute must! At least we seem to be past the hackneyed and misguided “good for growth” argument for a cheap currency. Most people today have a good understanding of the implications of movements in exchange rates, and when they make news, we have enough professional and amateur commentators to trot out yesterday’s prepared scripts. All I would add is a repetition of what I wrote some time ago “a consistently strong currency reflects economic health and a weak currency the opposite”. But it could be argued that focus on the Dollar, British Pound and the Euro is a bit skewed. Most viewers will not see much beyond the dollar and perhaps a case should be made for the Reserve Bank’s nominal effective exchange rate.

Gold price.

Keep it! If it is assessed purely on gold mining’s contribution to GDP then it has lost considerable weight compared with when it was first included. But the gold price reflects more than export earnings, mining income and mine employment. It is still, albeit informally, an alternative currency to many which explains its place in international business slots.

Also, mining has a far greater multiplier effect on other industries than most other sectors. The viability of mines has a concentrated impact on specific communities, which may be a good reason for also keeping the platinum price as an indicator, where its export income now exceeds that of gold. But I have my doubts. And if we are focussed on export earnings then adding a R/kg price may be more useful for both gold and platinum.


Our original argument for its inclusion was based on the logic that share price movements were a reflection of both local and foreign sentiment. This is clearly no longer absolute, given a record breaking All Share index recently, at a time when for the most part the mood was gloomy. The explanation for this is the lack of attractiveness of other investments, continued growth in profits despite lower income growth, and executive rewards linked to share values. But equities still have a dominant impact on public investments such as pension funds, endowment policies and unit trusts, which are more broadly held today than 20 years ago. For a compact bouquet of daily indicators, however, I doubt whether I would want to argue for more than the ALSI.

Oil price.

A significant number of people are often surprised when petrol price adjustments are announced. This casts some doubt on the usefulness of this indicator. The confusion of course, is caused by the Rand conversion. It’s an important price to the economy, but perhaps it could be made more meaningful if it was reflected in Rand terms.

That would be my top five for a daily fare. In time past, I would have championed more, but with the plethora of economic news in various media today, a case can be made for clearing the clutter and focussing only on a handful for routine reflection and your own personal attention. Of course no indicator is insignificant but instead of routinely cluttering these crucial five, it would be better to have fuller treatment, contextualisation and explanation of their movements. An understanding of these indicators, what influences them, and how they impact on the economy, will go a very long way to enhancing economic literacy. I’m left wondering how many of our top leaders in parliament, labour and perhaps even elsewhere have even this very basic awareness.

Of course, you may have more suggestions, and sharing them with us in your comments will enrich this article.

The marvel of an economy is that it is a living, breathing organism where each cell impacts on others and the body as a whole. But what we too often ignore is that at its heart and soul are people; their hopes, fears, aspirations and expectations and the way they behave.

Now, if only we could find a daily indicator that would reflect that!

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