It's lore that Federal Reserve bankers seek out obscure economic indicators to predict the future -- former Fed Chairman Alan Greenspan supposedly favored cardboard-box orders. But now there's a really neat indicator which, thanks to the Internet, may be closer to real-time than anything else. The UCLA Anderson Center, in conjunction with credit-card processor Ceridian, has dreamed up the Ceridian Pulse of Commerce Index to track fuel purchases at 7,000 truck stops around the country.
Ed Leamer, director of the Anderson forecast, says "the interstates are the arteries of the system," and so credit-card swipes for fuel are a perfect insight into how much freight is moving and where. Economists call this "high frequency data," with the best example being the millisecond-by-millisecond changes in stock prices. "We know a lot about high-frequency changes on Wall Street, but there's nothing we know on Main Street that occurs at this speed," adds Leamer.
UCLA is keeping the data under wraps until a Feb. 10 launch of the index, but the school provided a look at what the credit-card swipes showed leading into the current crisis. The year-over-year change in three-month average purchases started plunging in early 2007, from 5% growth to 2.5% in mid-2007 and -5% in early 2008. By early 2009 it was down 15% but quickly rebounded, although the index was still negative at the end of the year. The index also "predicted" the 2001 recession and the slowdown in 2003-2004. Leamer prefers the three-month moving average for overall purchases because "as you zoom in on higher frequencies you also get a lot of noise." A run on frozen pizzas in Southern California might cause an uptick in freight that doesn't last the month.
The index will be publicly available (the website is still under construction), but Leamer says customers might pay for other slices of the data to indicate, say, regional changes in freight traffic. Hedge funds might want the high-frequency data, as noisy as it is, to try and get a jump on competitors. And there's a big customer in Washington he's counting on signing up.
"The Fed could have looked at this data and sensed weakness" even sooner than with less-frequent data, he says. "When they see this they're going to jump all over it."