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Tracking the economy and GDP through trash

Kai Ryssdal Aug 16, 2012

Tracking the economy and GDP through trash

Kai Ryssdal Aug 16, 2012

Kai Ryssdal: Sure, there were some economic numbers out this morning. First-time claims for unemployment benefits: Meh. And housing starts: Also meh.

But how ’bout this? Trash. Garbage. Waste. Refuse. Therein, my friends, lies the economic truth. It came to me in a chart I saw online the other day — railroad carloads of trash, as correlated to GDP. And the correlation is pretty close, too.

Economist Michael McDonough has worked out the GDP-to-trash indicator. Welcome to the program.

Michael McDonough: Hey, thanks for bringing me on to talk trash.

Ryssdal: Yeah, that’s right. 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.

Ryssdal: All right now, did this come to you in the middle of the night one night? Why are you tracking trash, man?

McDonough: When I was in college, as a side project I guess you’d call it, I studied a lot of anthropology and archeaology. And one of the ways you can track ancient people migrations in the size was how much trash they left as they moved from point A to point B. So everything just kind of came together. I found the data, I ran the numbers, and it made a lot of sense in my mind.

Ryssdal: Michael McDonough, he’s a senior economist at Bloomberg Briefs. We got him in Hong Kong. The graph that we’re talking about, it’s kind of crazy, the correlation. Michael, thanks a lot.

McDonough: Thank you.

Ryssdal: Mike said there’s something wrong in the underlying economy? As bad as it’s been since Lehman brothers is how wrong is what he figures. Have a look yourself at the chart above.

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