Rutgers Business School-Dry Cleaning Index (RBS-DCI)
Farrokh Langdana, professor of finance and economics, and the director of the Rutgers Executive MBA program, has devised a new economic index to get a better sense of whether people are working, looking for work, or have given up looking for work – the Rutgers Business School-Dry Cleaning Index (RBS-DCI).
Over 2,000 MBA students in the Full-Time, Flex, and Executive MBA programs surveyed their dry-cleaners to determine if the volume of shirts and blouses over the last 6 to 12 months had stayed the same, dropped, or increased. If individuals are working or looking for work, the demand for the cleaning of shirts/blouses increases. The RBS-DCI index captures part of the elusive change in the Civilian Labour Force (CLF) participation rate in New Jersey.
An index of 50 indicates "no change" in the volume of the laundry of shirts and blouses, less than 50 indicates a slowdown, and greater than 50 indicates growth in the volume of shirts and blouses.
Rutgers Business School Dry Cleaning Index (RBS-DCI)
December 8, 2016: The RBS-DCI = 60.0. Result: A macroeconomic recovery is currently under way in New Jersey at the same pace as in 2015.
December 11, 2015: The RBS-DCI = 60.3.
December 8, 2014: The RBS-DCI = 62.5.
Next release of RBS-DCI scheduled for December 9, 2017.
Why the RBS-DCI is needed
The unemployment rate is one of our most eagerly anticipated statistics, yet it is fraught with deficiencies and limitations.
Officially, the unemployment rate is the percentage of the Civilian Labor Force (CLF) that is unemployed. The CLF is the over-16 population minus any/all individuals not actively looking for work. Hence, discouraged workers are excluded from the CLF and are missing from the official unemployment rate.
As more and more workers simply give up looking for work and stop searching, the CLF drops. This confuses matters when, for instance, the unemployment rate falls from, say, 5.1 % to 5.0% (as in did in October, 2015). This may not necessarily mean that fewer workers are unemployed. If the denominator, the CLF, or the "size of the pie" shrinks too, it then muddies the picture.
Workers who have dropped out of the CLF are said to not be participating, so the "participation rate" is defined as a percentage of the over-16 population that constitutes the CLF. In fact, the participation rate in the US has dropped to February 1978 levels at the moment, a record low of 62.4% as of September 2015, as the long-term unemployed simply have stopped looking for work.
U.S. Civilian Labor Force Participation Rate 1978-2015
Source: U.S. Bureau of Labor Statistics (http://data.bls.gov/timeseries/LNS11300000)
Given that the official unemployment rate does not capture the change in the denominator (the CLF) relative to the jobs created, a “real-world” index that captures those who are working and those who may be making the transition back to work—back to joining the CLF—has been conspicuous by its absence. Until now with the RBS-DCI.
To calculate the index = (percentage of business is better)(1) + (0.5)(percentage of about the same) + 0 (percentage of worse than before)
If we get 100 % of the responses for being "laundry business has been better", then the index would be 100. If 100% are worse than the index would be zero. If 100% saw no change then the index would be 50. So any number for the index more than 50 is a growth in laundry business, and below 50 is drop in business.
New Jersey Employment Data
(Numbers in thousands)
SOURCE: U.S. Bureau of Labor Statistics (http://www.bls.gov/schedule/archives/laus_nr.htm).
UE = Unemployed, UE Rate = Unemployment rate.
Star Ledger/NJ.com: Does your dry cleaner hold the secrets of N.J. economic recovery? (12/8/2014)