December 18, 2017
    Economic indicators: Make sure you’re looking at the right ones

    Advice from 3 association chief executives

    By Ed Dalere | 09/22/2016

    In 2008 and 2009, when the country was in a recession, Todd Mann, now president of the Todd Mann Management Group, worked for an association that represented the commercial construction industry. He saw his industry’s economy tanking. Ten percent of his smaller members went out of business, and medium to large members’ revenues went down by 50 percent. The very real concern and challenge was, member dues were based on company sales.

    But Mann was prepared, as he paid attention to indicators around him. He first saw that the homebuilders were laying off a tremendous number of people. That was an indication that new projects in his industry would start to take a hit in two years. So Mann created budget planning for two years hence. “I didn’t know the exact numbers, but I knew we would be decimated,” he said.

    Economic indicators are used by association executives to judge the overall health of their industry’s economy so they can plan their association’s budget accordingly, sometimes for many years out, and also forecast for their industry. Indicators can be the Consumer Price Index, Gross Domestic Product and unemployment figures. These general indicators, often considered coincident or lagging indicators are helpful, but most associations determine their own indicators, which they consider their lead indicators.

    “The health of your industry is directly related to the health of the association. I think you do have to keep your eye open on economic indicators,” Edison Electric Institute president Tom Kuhn, CAE, said.
    A leading indicator for EEI, for instance, is new home sales, as they then indicate electricity sales. EEI also reports national and regional electricity sales as an indicator of the health of the industry. Unemployment rates also are indicators that EEI use.

    Whole changes to an industry can cause an association to review and change the indicators it uses.

    The Newspaper Association of America recently rebranded and restructured the organization. The association is now the News Media Alliance, and changed its membership to include digital-first and digital-only news organizations, a recognition that newspapers no longer are the only media, or even the primary source, from which consumers get their news. But even before this change, which happened on Sept. 7, the association was already evaluating its current metrics.

    “We’re in the process of changing around our whole development of good metrics for the industry,” NMA CEO David Chavern said. “Historically NAA self-created major metrics for newspapers. Those metrics almost were all driven by print circulation and ad sales. We stopped doing it a few years ago because they were becoming less relevant.”

    NMA is looking to understand the impact of digital media, especially as advertising has become so fractured, he said.

    “A lot of association leaders look at indicators as a strategic view for where the industry is going. Just make sure you look at the right ones,” Chavern said.

    Mann agrees. Currently he is involved with an education association. Rather than putting primary importance on the economy, Mann scrutinizes state budgets and congressional authorization on education. He also looks at discretionary spending and what’s happening with new homes being built. “If things start going to negative at some point that’s going to translate back into schools.”

    Indicators aren’t the only measures that associations use, especially for short-term adjustments. In 2003, EEI relied on public opinion polls to discover that “people wanted a cleaner energy mix,” citing reliability as a blackout had occurred. “That led to a lot of major strategic changes in our industry,” he said.

    But executives cite the importance of indicators in shaping strategy and policy. Mann advises to determine “what are your own sources of income, and what’s going to get hit on your own budget should membership go through tough times. Make sure you have as many baskets as you can for your eggs, so you’re not dependent on one basket.”

    “Behind any economic indicator there’s always a situation that probably something going on,” Kuhn said. By navigating the cycles of the economy, the EEI board and leadership “can determine the public policy to shape the industry over the next 15 years or so.”

    “When you get together for a long time in a retreat atmosphere [with the association leaders] ask what is your vision for your company over a decade. This really helps give direction for the association,” Kuhn advised.

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