Interview with Jason Schenker, author of the book “Reading The Economic Tea Leaves”

Jason Schenker has been ranked a top forecaster of crude oil prices, industrial metals, foreign exchange rates, and economic indicators by Bloomberg News. As the President of Prestige Economics, Jason is one of a handful economists that advises industrial companies and firms with significant exposures to commodities and the global supply chain. Jason is also the Chairman of The Futurist Institute, which helps train executives, analysts, and professionals to become certified futurists. Jason often speaks on commodity market, economic, and futurist topics, and he spoke as part of the World Rubber Summit at the Singapore Exchange in March 2017. Jason has frequently appeared on Bloomberg Television and CNBC. He is the author of nine books, including Commodity Prices 101 and The Promise of Blockchain.

IRSG: You had an economic book come out this summer titled Reading The Economic Tea Leaves: Secrets to Unlocking the Value of Economic Indicators. What is it big idea of the book?

Jason Schenker: Well, the big idea of the book is to share how economic data and reports offer insight into industry activity, business activity, and financial market activity. And that really drives the purpose of the book, which is to share exactly how these specific reports and data can have important ramifications for businesses as well as individuals.

IRSG: Why are economic reports important?

Jason Schenker: The economy is like oxygen. It’s all around you — even if you don’t think about it. It impacts your professional options, your investments, and whether or not you have a job. And you need to understand what’s going on in the economy in order to make important decisions about your company, your career, and your investments. This includes currencies, interest rates, equities, and commodity prices, including aluminum and copper prices, crude oil prices, and synthetic rubber as well as natural rubber prices. My book helps people understand where to find the most valuable economic reports as well as what the most important numbers to watch in each report are.

IRSG: So where do economic reports come from?

Jason Schenker: Economic indicators are reports that are usually published on a regular basis — like a magazine. They tend to come from one of four different places:governments, central banks, industry groups, and NGOs.

IRSG: Which are the most important differences between types of economic data?

Jason Schenker: There are three kinds of economic indicators: leading indicators, lagging indicators, and coincident indicators. There is often a debate about what data fall into which category. Leading indicators are the most important economic indicators, because as their name indicates, they lead economic activity — and they often lead financial market dynamics.

IRSG: What is the best approach you recommend for people looking at commodity risk?

Jason Schenker: Putting your hands up in front of your face doesn’t make a raging bull go away. And it doesn’t make economic realities vanish either. You need to do what I did in Pamplona in 1997, and grab the bull by the horns. You need to get with the program, and start watching national, regional, and industry economic reports that matter the most to you, your customers, your suppliers, and your region.

IRSG: What impact does volatility in natural rubber prices have on economies that are critical producers?

Jason Schenker: Obviously big swings in prices make business planning more difficult. Price swings can also risk turning capital investment planning into something that resembles a little kid’s soccer team. For the natural rubber supply chain this can translate into a bullwhip effect. In short, natural rubber price volatility can foster feast-or-famine supply and investment dynamics.

IRSG: What do emerging technologies mean for the rubber industry?

Jason Schenker: For natural rubber, the biggest supply chain dynamics that could be important are likely to be linked to the increased and significant rise of e-commerce on a global scale. As e-commerce demands rise, global miles driven are likely to increase significantly, which could increase natural rubber tire demand — and prices — on trend. Additionally, an increase in miles driven also presents upside demand risks for oil, which could thereby present upside risks to synthetic rubber demand and prices. Anything that presents significant upside risks to oil prices and synthetic rubber prices could also present upside risks to natural rubber prices.

IRSG: What are the most important indicators to watch for rubber prices?

Jason Schenker: The most important forward-looking economic indicators for commodity prices — including rubber prices — are purchasing manager indices (PMIs). PMIs are surveys of purchasing managers at manufacturing firms. These are good data points for assessing growth because they are easy to understand, and they show in real time what purchasing managers — the people who buy raw materials and inputs at factories — are doing.

Expanding PMIs are usually fundamentally supportive of commodity prices. So, if purchasing managers are buying more on a monthly basis, a PMI will be above 50, which is indicative of increased production runs for finished goods — and is a precondition for growth. Readings below 50, however, are indicative of monthly contractions. And this can weigh on industrial commodity prices, including rubber.

The most important manufacturing purchasing manager indices are the U.S. ISM Manufacturing Index, the Chinese Caixin Manufacturing PMI, and the Eurozone Manufacturing PMI.

IRSG: Are there any other big takeaways you would like to share?

Jason Schenker: It is important to know that some economic and financial market data are imperfect. Sometimes data may be compiled from inconsistent or inappropriate cohorts. The data may be mismatched, and — as is the case for government data — the data may be subject to massive and frequent historical revisions. Plus, you will bring your own biases to any analysis, and you need to be careful about that.

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