10
/ Wednesday, June 29, 2022
Eduardo Burgos-Suazo,
COO of ABEXUS Analytics and Professor at UPRCA
T
he current socioeconomic and political conditions are highly uncertain. Governments are experiencing considerable instability due to the international conflicts, abnormal supply-chain issues, an atypical job market, the threat of a coming recession and, guess what… inflation is not “transitory” as the FED initially estimated, moreover it has reached a 40 year high in the US. Conventionally, there are a few data sources that assess the state of the market, the relationship between consumers and businesses, and economic growth. Traditionally, if we were to explain current conditions one can point to statistics such as GDP, GNP, Purchasing Managers Index (PMI), unemployment claims and Consumer Price Index (CPI) just to name a few. Although such statistics are robust and serve as official constructed tools to gauge parts of the economic environment, they inevitably face some limitations
Unconventional times call for unconventional data (particularly technological). In the case of the CPI some have argued that it needs a substantive revision, since its last development. Therefore, one must ask if there are complementary, or “unconventional” techniques to assess different components of the economy. It turns out that there are! Let’s take a look. Take for example the “Big Mac Index” created by The Economist in 1986 as a measure to compare currency exchange rates (and yes… we are taking about the burger). It proposes that as Big Macs around the world are relatively the same, contrasting prices in different countries for the burger show the gap in how different currencies are valued. And if you believe this is nonsense, you will be surprised to find the Index in economic textbooks and in more than a few academic studies. Now that we have taken the “unconventional” road, have you ever heard of the measure MUI or the “Men’s Underwear Index”? The theory was exposed by former head of the U.S. Federal
Imagine how much information one could derive from analyzing consumption patterns in Puerto Rico, given the Island’s commercial culture! Reserve, Alan Greenspan as a way of detecting possible economic recovery or on the other hand, a coming recession. In simple terms, it states that when men are worried about their finances or economic affairs, they will cut back on buying underwear. When the perception is that economic conditions are improving, it’s one of the first discretionary purchases men tend to make. Imagine how much information one could derive from analyzing consumption patterns in Puerto Rico, given the Island’s commercial culture! Likewise, using mobility datasets one can assess how many “individuals” visit a set of pre-determined locations such as workplaces, groceries stores, recreation, retail stores, among others. This information can be used to examine mobility patters and their relationship with spending habits and beyond. Furthermore, analyzing “key words” search frequencies in web browsers can derive some insights to what consumers are thinking or worried about. As an example, based on Google trends data, searches for the word “inflation” peaked to its highest levels during the week of Jun 12 to Jun 18, 2022, in the U.S. We are in need of a complex (not mechanical) approach to analyze human conduct; thus, we need creative mechanisms to measure analog and digital interactions, and their relationship with the economic system as a whole. Don’t get me wrong, as much as we need creativity we are in greater need of consistent and reliable methodologies that can bring some certainty to uncertain phenomena. Nonetheless, complexity, creativity, and robust statistical analysis can coexist. Of course, none of the outlined “unconventional” statistics are perfect, yet they serve as examples of what is available and allows others to take the opportunity to leave behind personal or professional biases which are purely based on tradition. Organizations should truly embrace all the spectrum of additional data points in a historic moment where unconventional data may be of some use.
