BUSINESS
5
Ad vance Economic Barometer
(*bars predict changes in Detroit area economy)
4
160
155
3
150
2
145
140
0
1
135
-2
130
-3
125
JFMAMJJASONDJFMAMJJASONDWAINMT
AEB
F
DABAI
ECONOMIC BAROMETER SIGNALS
NEW HIGHS FOR DETROIT
ZeJ'iaavliloigemJaeMh News
n November 1992, the
Advance Economic Ba-
rometer index (AEB),
a monthly publication
of Comerica Bank,
reached a level of 4.0, the
highest point in 5 '/2 years.
This AEB index signals con-
siderable improvement in
business activity and sales
momentum for the local econ-
omy by midyear 1993.
Even as of October 1992,
total retail sales throughout
the Detroit metro area were
up 7.8 percent compared with
ten months of 1991. After ad-
justing for 1.7 percent retail
inflation (i.e., price increases
David Ullmann is senior
economist for Comerica Bank.
on retail goods), the real vol-
ume improvement was a
healthy 6.1 percent. It will be
March before the full 1992 re-
tailing performance is offi-
cially tabulated, but the
comparison must be qualified
because 1991, a recession
year, was among the weak-
est ever recorded.
Graphically, the latest
AEB number is shown as a
vertical bar in the month of
June (see chart) because the
AEB is a predictor of the like-
ly position and strength of
metro Detroit's economy 6 to
7 months into the future.
The AEB index consists of
the most accurate economic
forecasting data series avail-
able, including monetary, fi-
nancial and brick-and-mor-
tar statistics.The AEB thus
far has had an uncanny track
record relative to charting the
future movements of the U.S.
economy, the Michigan econ-
omy and the local economy.
Currently, it is predicting a
5 percent increase in Detroit's
economy for calendar 1993.
The "local' economy con-
sists of the eight county
southeast Michigan region,
including Washtenaw, Mon-
roe and St. Clair. The busi-
ness activity captured in the
region includes sales, bank-
ing, employment and pro-
duction data rolled into a
single monthly indicator
called the Detroit Area Busi-
ness Activity Index (DABAI).
The DABAI, according to
news releases issued between
April and November 1992,
has moved from the mid-140s
to the mid-150 levels. But, if
the AEB hits the mark again,
it will produce a DABAI in
the range of 155-160 by the
end of June 1993.
The DABAI tends to rise
more vigorously than the
growth rate of the national
economy whenever auto and
truck sales are doing well. In
1993, we believe the United
States will enjoy a 10 percent
gain in vehicle sales (versus
4 percent in 1992) because in-
flation will remain fairly low
(between 3.0 and 3.5 per-
cent), financing rates will re-
main affordable (especially
during the first half of 1993),
and acceleration in business
activity will improve em-
ployment, consumer confi-
dence and spending.
As long as after-tax pur-
chasing power of Americans
is rising by approximately 3
percent per year, the pace of
auto sales and retailing will
improve.
Glitches to this forecast
can arise from sudden and
unfortunate swings in fiscal
or monetary policies, mostly
instigated in Washington.
For example, if the Green-
span monetary authorities at
the Federal Reserve decide to
hype money supply growth
rates, then the U. S. and De-
troit economies will rise