By: Michael Guckes, Senior Economist on June 7th, 2022
Using Non-Dollar Metrics to Track the Economy During High-Inflation Periods
In a recent article, Construction Industry Still Facing Supply Chain & Manufacturing Issues, I explained how the dollar value of new orders and unfilled orders have grown at double-digit rates since their pre-pandemic highs. Yet, due to extreme price inflation for construction materials over the same period, these seemingly significant dollar value gains don’t represent an equal size increase in the quantity of materials being ordered.
To help our clients stay at the top of their game in this market, the economics team at ConstructConnect is looking closely at both inflation-adjusted real dollar metrics, and non-dollar metrics. Several examples of non-dollar metrics include:
- Square Feet: ConstructConnect’s Insight Forecast database tracks historic and forecasted construction demand in both dollars and square feet. Monitoring future demand for construction in square feet removes the perceived change in demand caused by fluctuating costs to build a fixed amount of square footage.
- Diffusion Index Data: Diffusion indices measure the proportion of surveyed respondents reporting a change in conditions. Index values for new orders, backlogs, and unfilled orders, among other metrics, rise as the proportion of surveyed respondents report an increase in the said metric.
- Ratios: The ratio of inventory to sales is one such metric that can be very helpful during periods of high inflation. Days of inventory is a similarly effective non-dollar measure of the relative balance between demand and supply. A decline in demand—which might signal a turn in the economy from expansion to contraction—would cause a bump in inventory-to-sales ratios, all other things being equal.