Could it be true that the taller the skyscraper the harder the fall? The correlation between completions of tall skyscraper buildings and economic is a fairly familiar concept. The Skyscraper Index was created by Andrew Lawrence in 1999 and explained that constructions of tall skyscrapers were representative of beginning of economic downturns. This trend of correlation between the construction of tall skyscrapers and economic business cycles that ended in recession was first studied in the 1930s, which was around the time of the Great Depression in the United States.

Historical examples of this phenomenon from the past century include the completion of the Empire State Building in the 1931 when the Great Depression had just started, the completion of the Petronas Twin Towers in Malaysia in 1996, which was when the Asian financial crisis began, and of course, the completion of the Burj Khalifa in Dubai in 2010 which was right after the 2008 worldwide financial crisis. Another key example would be the construction of the Sears Towers and the World Trade Center Towers that were built in 1973, during both the 1973 stock market crash and the 1973 oil crisis. Andrew Lawrence hence argued that almost all major skyscraper construction initiatives were pre-cursors to financial busts. The theory suggested that the building of skyscrapers generally started during the later phase or the peak of the economic boom when employment is usually high and the economy is growing, which is followed by economic downturns and low unemployment rates. So even though all economies go through business cycles, skyscrapers especially tend to be constructed in the last or peak phase of an economic boom and finish in a recession.

The skyscraper index might not seem legitimate and it could be possible that the aforementioned examples could be coincidences, because correlation does not always mean causation: and one may think why would impactful structures like skyscrapers that could be highly profitable be destructive to the economy? However, the Barclays Skyscraper Index Report shows that not only is there correlation between the construction of tall buildings and recession, the report also proposes that the rate of increase in the height of the skyscraper could indicate the extent of the financial crisis. The report tracks the building of new skyscrapers and their increase in height in comparison to the following recession that occurred from 1873-1878 until 2007-2010. There seems to be a trend in the study that the rate of increase in record-breaking skyscrapers is directly related to the magnitude of the economic downturn that occurred after.

Nevertheless, there have been some recessions that occurred in the past century that were not preceded by the construction of a tall skyscraper. For example the skyscraper index failed to predict economic downturn in Japan, which had a recession in 1990, and it also did not provide any indication of the economic recessions of 1920-1921, 1937-1938, and 1980-1981. An economist Mark Thorton commented, “both the causes of skyscrapers reaching new heights and severe business cycles are related to instability in debt financing”. Of course, economic indicator can predict perfectly, but the skyscraper index could be a basis to predicting some form of crisis rather than specifically speculating the severity of economic business cycles. It would be interesting to see what this could mean for the world’s fastest growing economies, India and China, which have multiple large scale skyscraper projects lined up for construction within the next few years.

 

 

 

 

 

 

As Coco Chanel once said, the number one rule for a lady is to “keep your heels, head, and standards high.”

…. but which ‘standard’ was she talking about?

Using fashion trends as economic indicators is not a new concept. In fact, economists have been using them in conjunction with the ‘retail sales index’ for many years. It began in the 1920s with George Taylor’s hemline theory, as he speculated that women wore shorter skirts as way to show confidence during strong economic periods. The trend then transitioned to lipsticks, when after 9/11 Estee Lauder suggested that the sharp increase in their sales was a direct response from women who were using impulse spending as a way to cope and grieve. More recently, however, economists have been using the “high heel index” as a way to measure consumers confidence in the economy.

While measuring the height of a heel may seem ridiculous, a recent recent study by IBM suggests that there is a strong correlation between the height of one’s shoe and the success of the economy. Their report comes as a result of an in-depth social media analysis, where researchers tracked trends and posts about shoes across the internet to understand what types of heels women were wearing and how high they were.

 

According to the report, heel heights have traditionally increased during harsh economic times, as fashion is used as a form of escapism and expression. However, more recent data indicates that this trend may be “last season”. In 2009, shoe manufacturers and retailers were reporting that they were selling more lower height heels and flats in their store. Since this was still during the recession, IBM analysts theorized that there must be a shift taking place with consumers. By wearing lower heels, were women saying that no longer felt the need to be showy or ostentatious? Or were they just trying to be more comfortable on their walk to work?

Although there is no perfect answer or way to measure the index, it is clear that economists can gain tremendous insight about our economy and consumer confidence by looking at even the most commonplace things.

 

Real estate development has always and still does account for a fairly large proportion of GDP of every sizeable economy. The development of tall skyscrapers has historically been offset during times of economic expansion and booms when funds and monetary resources are more easily accessible, and there is assurance of profitability, naturally. Also, skyscrapers are fairly lucrative by nature because they create more space horizontally in the same plot of land. However, skyscrapers are often just conjectural development projects that are built without any concrete plans relating to usage of the space being created. However, the completions of tall skyscraper buildings seem to have formed a recurring pattern, in the past century or so, of often being pre-cursors to economic recession or financial crises. This correlation between the construction of tall skyscrapers and economic business cycles that ended in recession was first studied in the 1930s, around the time of the Great Depression in the United States. Historical examples of this from the past century include the completion of the Empire State Building in the 1931 when the Great Depression had just started, the completion of the Petrnoas Twin Towers in Malaysia in 1996, which was when the Asian financial crisis began, and of course, the completion of the Burj Khalifa in Dubai in 2010 which was right after the 2008 worldwide financial crisis. Another key example would be the construction of the Sears Towers and the World Trade Center Towers that were built in 1973, during both the 1973 stock market crash and the 1973 oil crisis. According to substantial research done by economists, and there are conflicting opinions about weather there seems to be a correlation between skyscrapers and economic business cycles. While there are some rational explanations as to why the constructions of skyscrapers began during economic booms and ended during major financial crises, opposing research has also shown that there is almost no correlation between construction of skyscrapers and economic conditions, and that past events have been, to an extent, coincidence. Economists who concur with the fact that there is an important association between constructions of skyscrapers reinforce the Skyscraper Index, which was created by Andrew Lawrence in 1999. It states that tall skyscrapers have escalated right before or after serious economic downturns. It is self-evident that large projects like building one of the tallest skyscrapers in the world would get investment during an economic boom, due to lower interest rates, higher demands and easier access to monetary resources. However what’s interesting is that all of these components reach a peak during the growth or construction period of the building of a skyscraper, and this right when the economy has already reached its peak and is about to go into a recession. On the other hand, there are also exceptions to this and there are many economists who would agree that the skyscraper index is not a good enough economic indicator. But it is still an intriguing concept. There are numerous skyscraper projects coming up in the world’s fastest growing and high potential economies, India and China and it would be gripping to see how the completion of the new structures could be correlated to economic conditions in the future.

 

 

 

 

We often search to find indicators to help us prepare for the good and the bad. An economic indicator is defined as a statistic used to gauge future trends in a nation’s economy. Reports on these indicators are released monthly, quarterly, and annually to help the public understand how things are going within our country. Gross Domestic Product (GDP), personal income, and retail sales are among the more popular indicators we analyze.

However, there are many other markers that people have come up with to predict the economy. Notoriously known by its slogan “i’m lovin’ it” and its clown mascot, McDonald’s has contributed to create affordable meals during times of need. While most people are nervous and sad when the economy is falling or acting poorly, the Happy Meal Indicator reacts in direct correlation with the economy.

At McDonald’s and other restaurants around the globe, the Happy Meal Indicator works such that “in an effort to protect profit margins, restaurants downsize free offerings to kids like crayons and toys” (Platt). This measure allows us to see how big corporations are adjusting to the poor economic activity and loss in revenue. During the 2009 recession, gourmet burger chain Red Robin halved the amount of crayons they gave to kids to color at their tables. I would assume many children were upset that green was no longer when they were given blue and red crayons.

There are no actual numbers that can be calculated from the Happy Meal Indicator, other than alerting us how the hospitality industry is reacting. By analyzing the expense cuts on things such as toys, crayons, and other freebies we are able to predict that corporations have less free cash on their balance sheet and spending is becoming a concern. Another example of this is that many hotels held back from leaving chocolates on their guests’ pillows during the recession as a means to save money.

Although restaurants like McDonald’s and Red Robin look to cut costs during these hard times, they have a better survival rate than others. People want to find the cheapest alternatives to feed their family and support a “normal” lifestyle, so they turn to the dollar menu and cheap food options.

We may or may not notice when our favorite brands have left out a toy in our happy meal, but economists do. There are reasons behind this madness, the themes of toys always coincide with the latest hit film or a major event going on. It is a way to attract people to spend more money; however, the companies can sometimes no longer afford this marketing stunt. Now understanding the Happy Meal Indicator, we will be one step ahead of our colleagues only by knowing whether or not we receive a toy or if our Red Robin no longer has crayons.

Patterns in consumer spending, which account for more than two-thirds of the economy, are most often the principal influence on both the stock and bonds markets. In times of economic downturn, both consumer confidence and consumer spending become diminished as people tighten their belts.

The 2008 US and world financial crisis that spurred economic recession resulted in a dip in consumer spending between a period of two years [2008-2010], according to the Bureau of Economic Analysis.

In 2009 US consumers spent 2.8 percent less, on average, than they did in the previous year. Expenditures essentially decreased across the board and entertainment decreased by 5.0 percent from the Bureau of Labor Statistics report from 2008. In spite of the overall decreases in spending U.S. box office sales hit an all-time high in 2009 at the height of the recession.

Short-term enjoyment as a means of forgetting economic despair is not uncommon consumer behavior. In fact, after the crash of 1929 that led to the Great Depression consumers flocked to their local theaters. This sort of escapist mentality was mirrored again during the Great Recession, with films like James Cameron’s record-breaking Avatar producing 2.788 billion USD in ticket sales.

ODEON Cinemas, the largest cinema chain in the United Kingdom by market share took this traditional consumer response a step further by observing trends in the company’s concession sales. Though not a perfect science the chart [below] indicates that while economic downturn may lead to more box office sales, dips in the FTSE – an indicator of consumer confidence – correlate to a decline in the consumption of concessions, more specifically popcorn for U.K. cinemagoers. The cause of these trends is obviously debatable but likely do to the fact that while people may be running to the cinema during periods of economic downturn, they are not necessarily buying up concessions.

 

The Odeon popcorn index of economic confidence compares average popcorn sales per ODEON cinemagoer with the Financial Times Stock Exchange 100 Index (FTSE 100 Index) of companies on the London Stock Exchange with the highest market value.

Rupert Gavin, chief executive of Odeon, tracked week-by-week popcorn sales and observed that sales of popcorn and the FTSE were not only correlated. At one point sales of popcorn were leading the FTSE.

Between June and July of 2009, popcorn sales continued to rise while the FTSE took a short drop, spiking up again by mid-July. This was significant because it meant that popcorn sales had the potential to predict future economic climates, while also reflecting current climates.

There is no way of knowing for sure whether or not movie theater popcorn sales will remain an economic indicator; however, at least for now they appear to hold a certain level of credibility for gauging the market and consumer confidence and spending.

http://www.thisismoney.co.uk/money/news/article-1679109/Popcorn-index-shows-economy-on-mend.html

 

A recessive economy is no match against the steaming morning luxury that fuels the pulse of the city. Consumers pinch their pockets for the morning Cup O’ Joe, even during economic strife, but the foam-topped coffee can get expensive overtime.

Folks that are willing to spend as much as $6 a day on a morning beverage is a curious concept in a struggling economy. Spending habits on coffee are inextricably linked to an established morning routine. Coffee drinkers are creatures of habit. The coffee drinker views the cup as an inseparable part of the daily ebb and flow of life. Coffee sales outside of the home skyrocketed in 2004, likely due to the success and popularity of popular corporate coffee houses. Coffee transformed from an in-home treat to a fast food experience.

Over the past decade coffee consumption outside the home has shown some reaction the the nation’s economy. In 2001, coffee consumption outside the home was in the low 30% range as the nation entered the economic recession. Ryan Sweet, a U.S. economist for Moody’s Analytics alludes that a low coffee consumption percent is directly correlated to a high unemployment rate. In 2004, when the U.S. unemployment picture turned around for the better, outside home coffee sales soared from 29% to 40%.

 

Coffee Consumption Outside of the Home

YEAR	2001	2002	2003	2004	2005
Outside Home	32%	34%	29%	40%	39%
Unemployment	4.7%	5.8%	6.0%	5.5%	5.1%
Economic Climate Backdrop	Recession	“Jobless Recovery”	” “	“Unemployment Improves”	” “

YEAR	2006	2007	2008	2009	2010	2011
Outside Home	40%	33%	36%	35%	30%	27%
Unemployment	4.6%	4.6%	5.8%	9.3%	9.6%	*9.1%
Economic Climate Backdrop	” “	Recession	” “	” “	“Jobless Recovery”	” “

*Seasonally adjusted unemployment rate for month of July from Bureau of Labor Statistics

Source: National Coffee Association of USA for coffee consumption in the home and outside of the home; Bureau of Labor Statistics for annual average unemployment rate figures; Economic climate backdrop Moody’s Analytics.

Via aol.news

According to one economist, however, coffee will only suffer in the most serious times, and is considered as necessary as the utility bills and automobile gas. Most coffee houses are doing as well as they ever have, and according to Verner Earls of Chauvin Coffee Company, some coffee houses have reported record sales. “People aren’t going to give up the latte,” claims Verner. “Bigger expenses will go first.” The mindset behind the consumption of coffee allows coffee houses to weather recessions well.

This general trend for coffee consumption does not leave all coffee houses safe. Many local shops struggle with a crunched economy, as well as corporate coffee chains being forced to close down stores. In 2008, during the heat of the recession, Starbucks Coffee announced it will close 600 stores across the United States, according to the New York Times. This move by Starbucks cost over 12,000 employees their jobs, the most in its history (via the New York Times).

The fall of Starbucks in 2008 reveals that java sales are a hot economic indicator of the state of the economy. As the dollar collapses, so does the average American’s spending power.

Coffee has become a fast food luxury treat, all of which its raw materials: sugar, coffee, milk, wheat, and chocolate are all skyrocketing in price due primarily to the fall of the dollar, according the the Huffington Post. This hike in prices causes the cup cost to steadily rise.

Coffee sales, specifically using the example of Starbucks Coffee establishments is a prime example of how a falling dollar will make something like coffee, an item that Americans gorge on, daily for that matter, too expensive to include in the morning ritual.

Speaking from experience, a trip to a coffee shop is an absolute treat that I enjoy frequently with my mom. So much so, that we budget our social coffee hour into our weekly expenses tough economy or not.

 

 

 

Sources:

http://www.riverfronttimes.com/foodblog/2009/04/01/java-enabled-is-coffee-recession-proof

http://archive.boston.com/lifestyle/food/articles/2011/12/14/in_a_weak_economy_buying_morning_coffee_is_a_small_reward/

http://www.aol.com/article/2011/08/11/is-coffee-the-new-leading-economic-indicator/20015519/

http://www.nytimes.com/2008/07/02/business/02sbux.html?_r=0

Economic Indicators: Beer

The world’s economy is constantly changing and while people commonly use economic indicators such as GDP, unemployment rates, etc. to gauge the economy, other surprising measures can be decently accurate. One interesting economic indicator is beer. When the economy is good beer consumption at restaurants and bars are relatively stable/high. However when the economy is slower, beer consumption also slows down. The reason for this shift is that when people have less spending money they generally go out to eat less and even when they do eat out they are less inclined to purchase drinks at dinner. Similarly people may frequent the bar less and if they do go to the bar they might drink before hand or purchase less drinks at the bar to save money. Instead they might purchase beer at a grocery store and drink it at home or forego drinking entirely. People are less likely to spend money are items that are not considered necessities. The consequences of declined beer consumption affects more than just bars and restaurants. It affects the waiters and waitresses at the bar and the breweries themselves. The waiters make less money and tips, which affects their purchasing power. The breweries may also earn less revenue due to decreased consumption. As a result they may slow down production and produce less beer. This could also have a domino effect on their employees if they no longer need as many workers to sustain the demand on their products. All these consequences also affect tax revenues. The government will not be able to collect as much tax revenues if less product/money is being earned.