I am often asked if there are any obscure indicators I look at to gauge the future of the economy—the kinds of things that only an economist could love. I do have a few that rarely, if ever, make the headlines. They can, however, tell a lot about what’s in store.
Back when oil was king and I was a baby economist, I came to rely on the “shiny rig indicator.” As I ambled around Texas, I discovered that if oilfield equipment was being sandblasted, drilling would soon follow. That one still works. In the labor market, I always pay attention to the “quit rate.” If people are voluntarily leaving their jobs in search of greener pastures, things are looking up. To get a handle on traditional core manufacturing industries, I am fond of tracking patterns in freight car unloadings. If raw materials and intermediate goods are being moved around and about, you can safely bet stuff is being made.
You may well have noticed a pattern here. It’s no big secret. I tend to follow those measures that are a few layers below the radar screen and a few steps before the final product. They are leading indicators, but many of them are not important enough for most folks to include in any kind of formal index.
Believe it or not, I mention all of these things about oil, jobs, and traditional manufacturing in order to talk about high tech. For the first time in the past eighteen months, my favorite indicator of the prospects has microelectronics turned decidedly upward. In this case, I like to watch the orders for high-tech manufacturing equipment (the machines that make the chips rather than the chips themselves). When these orders go up (which they did by a bunch last month), production will soon be on the rise. This renewed strength is good for Texas (especially Austin). As this sector comes back, we will be left with only telecommunications equipment as a significant lagging segment of the emerging recovery (my subterranean measures there suggest that we are still a few months away from anything exciting).
As microelectronics, the great symbol of our diversification in recent years, rises from the ashes, a word of caution is in order. Despite its inherent volatility, this sector has been a source of enormous growth in recent years. When we next find ourselves searching for signs of recovery (which will hopefully be a long time from now), however, we are likely to see that chips have been morphed into the brave new world of biotechnology. We can only continue to make them smaller and faster if we adopt new technologies which abandon lasers and use molecular processes. This area is only one of many now on the horizon. What is considered “high tech” by one generation is almost inevitably a routine commodity to the next.
The point is simply that, while Texas did an excellent job of becoming a leader in microelectronics, a challenge lies before us to ensure we have similar success with the next wave of technological innovation. A lot of creative energy is going into this effort on many fronts, but we are not the only state to recognize both the potential payoff and the sense of urgency.
For now, however, we can take comfort in lesser-known measures of great import. Rigs are being shined, people are changing jobs, freight cars are being unloaded, and—finally—machines to make chips are being ordered. Full momentum has not yet arrived, but you might as well pop a cork.