Hello Slopers – Let’s Talk Some Trash

By -

Hello everyone I'm KC Scott and I'd like to start by thanking Tim for allowing me to share my thoughts with you fine folks. I've followed Slope for quite a few years and am always impressed by the quality of the content and your responses. This is a very smart blog and I'm proud to contribute. (Editor's Note – I was also delighted to see Scott escaped the clutches of IBC to the gentle world of Slope; we welcome him heartily – Tim)

For my first post, I thought we would talk trash – and how it relates to US Economy

I just listened to an interview with Economist Michael McDonough from Bloomberg Briefs over at marketplace.org.  McDonough offered a theory regarding the correlation of the amount of Trash hauled via rail to the Health of the Economy. He also offered the accompanying chart which tracks how well his indicator has performed since 1994.

Here's a snippet of that interview with host Kai Ryssdal:

Ryssdal: Explain to me how this works, because it's not like iron and steel — which are the biggest components of all this stuff — and demolition. It's not like that has anything to do with consumers buying more stuff and then throwing more stuff away.

McDonough: That's what's great about this indicator. It's holistic because it's not isolated to a single part of the economy. It's people throwing things out, it's buildings being demolished — it's everything. The current levels are indicative that you may be seeing a weakness in new construction. I mean, if you're going to build a new building, there might be a building that's already there. If you buy a couch, you might be throwing out an old couch. If you go out to McDonald's and you buy something, you're going to throw something out. So the fact that it is as weak as it is right now means something's wrong in the economy, potentially, in the underlying economy.

Ryssdal: So what kind of trash we talking here? Is this everyday household waste?

McDonough: You know, it's a whole mix of trash, actually. What you have is almost half of what the trash is iron and steel waste, and then the next biggest component is your demolition and your municipal waste. So places like New York City, Seattle — these guys are putting a lot of their trash onto trains, shipping it out to other states, and then dumping it there.

Ryssdal: And we should say that's where the data comes from, right? You get it from the American Association of Railroads or something, and those guys actually measure carfuls of stuff?

McDonough: Exactly. On a weekly basis — that's what's even more interesting about it. When you think about the concept of using trash as a proxy for GDP, it's not a leading indicator. If anything, maybe it's a slightly lagging indicator, because you have to wait for people to throw things out, possibly. More than likely, it's a coincident indicator. Except, you know, for GDP, you need to wait a month or two after the quarter ends before you actually get that figure.

If this is indeed an indicator, and it shows since 2000 it has been fairly accurate, then I see a significant divergence forming for upcoming Q3 GDP announcement