I stumbled upon a new index, when I was searching for some interesting news for our Management Portal. This is the PwC Global Consumer Index, or GCI. In their press release they write:
The Index is a leading indicator of trends in the global consumer cycle. It combines dozens of economic series into a single index, which historically has tracked global consumer spending closely. It is unique in that it provides an early warning indicator of trends at a global level, giving businesses and policy makers an indication of future consumer demand for goods and services and an early steer on short-term growth prospects.
That sounds as impressive as any press release about a new product. However, the index really seems to be an interesting indicator. A closer look at the report which accompanies the launch of the new indicator reveals the following:
Facts about the PwC Global Consumer Index
- The idea is to compile the immense number of indicators that are produced in every country into one single figure.
- Focus on 20 of the World’s largest economies which together represent more than 80% of global GDP
- The indicator is intended to be frequent and timely (monthly basis), forward looking (focus on indicators which tend to lead the consumer spending cycle), and transparent.
The GCI includes indicators from four categories
- Equity markets (S&P global index, and several global sector indices)
- Confidence indicators (Global business and consumer confidence)
- Commodity indicators (e.g. commodity and energy prices)
- Activity measures (OECD money supply and global industrial production)
The results are presented in two ways:
- Growth (current year-on-year growth rate of the GCI)
- Momentum (annualized growth rate based on the last three months)
- For all indicators and data used in the GCI, data was analyzed back from 1997. Hence, this brand-new indicator comes with 15 years of historical data and already covers a number of cycles in the world economy, such as the slowdown after the dot-com bubble.
My first conclusion
Here we have one single indicator for the global development of consumer spending – a figure that is influenced by a large number of completely different factors. On one side, this is an interesting analysis, which may provide new insights. On the other side – such an extreme aggregation of data always includes the risk to loose or ignore important pieces of information. The indicator will be most meaningful in periods, when a large proportion of the global economy develops into the same direction. I wonder what will happen when there are divergent developments in the countries included in the index:
What if consumer spending increases slightly or sharply in some countries and at the same time declines more or less in other countries?Will the index level out around some mean value? At this level of aggregation it will always require some explanation, interpretation and analysis. Well, I have no doubt that PwC intends to deliver this accompanying information on a regular basis.
I think every industry that is dependent on consumer spending patterns should have a closer look at this new indicator. The historical data already available allows to compare the index with other indicators or predictions that have been used in the past and thus to assess if it may provide additional insights for a companies planning and forecasting processes.