Why Economists are watching the paint dry

The buyers are back, home sales are surging and white paint is part of the picture. It's used on everything from houses to skyscrapers, and sales are picking up

From Wednesday's Globe and Mail Last updated on Friday, Jul. 17, 2009 02:13PM EDT

Fortune tellers read tea leaves. Astrologers read stars. And economists searching for signs of the recession's end are reading ... white paint.

More specifically, they're tracking the price of titanium dioxide, the substance that makes paint white. Titanium dioxide might not be a household name, and economists of course eye more widely watched indicators.

But white paint is seen by many as an economic barometer, given its widespread use in everything from house paints, cars and washing machines to railway cars, skyscrapers and airplanes.

If the price of titanium dioxide is doing well, the explanation goes, more white paint is selling, suggesting a pickup in economic activity.

So when the U.S. Department of Labor released monthly prices for TiO2 on Tuesday, many economists took note. The chemical's price was actually down in June, but has fallen at a slower pace for three months in row.

Titanium dioxide


"It's in the top 10 of obscure indicators," joked Richard Yamarone, an economist at Argus Research in New York. "But there's a lot behind it. It's not as silly as one may expect."

Mr. Yamarone noted that white paint is used in such a cross-section of the economy, it's important to watch. "I always knew it as the durable-good pigment," he said.

Some major makers of titanium dioxide, such as Kronos Worldwide, Inc. and DuPont, are beginning to push through price increases, saying that demand has started to pick up.

The companies had been cutting back production and closing plants for months because of the recession.

Asked if titanium dioxide, which costs around $1.07 (U.S.) per pound, is a good indicator of economic activity, Mr. Yamarone replied: "Oh, sure, absolutely. You've got to remember, when you looking at any economic indicator, there is no perfect indicator. The best you can do is get maybe a top 10 list and observe all those at the same time."

Mark Zandi, chief economist at Moody's Economy.com, said he follows the price of titanium dioxide fairly closely: "It's stretching a little bit, but I think it has historically been a good barometer of broader economic conditions."

He noted that yesterday's U.S. figures matched other signals about the economy making a slow recovery.

"It's consistent with the idea that the economy is still soft. We are still in recession, but we're headed in the right direction," Mr. Zandi said.

Both Mr. Yamarone and Mr. Zandi said they follow even more obscure measurements than titanium dioxide prices.

Mr. Yamarone, for example, said one of the most important indicators he tracks is the sale of women's dresses.

"The woman is traditionally the [chief financial officer] of a household. She sees when times get tough," he explained. "When things get tough, she postpones a ‘self purchase.' And there is no greater self purchase for a woman than a dress."

Right now, his dress sale indicator "is still contracting."

Mr. Zandi goes even further afield to read the economic barometer. He follows the number of people driving through tunnels and across bridges in New York and the number of airplanes taking off and landing in Orlando, Fla., because it's a good snapshot of vacation and business travel.

He also tracks the variety of products on grocery store shelves, "in terms of everything from fruits and vegetables to the kind of olives they put on display," he said. "In tough times you see much less variety, in good times much more variety."

Mr. Zandi said the hard economic data familiar to most people - such as unemployment figures, gross domestic product measurements and international trade statistics - are still vital for economists. "But these smaller things make a difference and sort of colour my thinking."

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