Starbucks Sales May Be Better Than GDP
Howard Schultz and Starbucks’ data sharing is challenging current expectations on economic reporting.
Gross Domestic Product, once held as the gold standard for measuring the American economy, is under threat of being replaced by a new, more responsive economic indicator — sales of Starbucks coffee.
According to a 2015 Time Magazine article, Starbucks’ coffee sales data “may be the most up-to-date consumer-confidence indicator in America.” In the article, Time’s Rana Foroohar wrote that daily coffee sales are “much more sensitive than quarterly GDP figures” because Starbucks’ numbers are updated four times-a-day, with information from its massive network of 12,000 stores nationwide.
What’s Wrong With GDP?
Foroohar’s comments come at a time when GDP is being labeled as antiquated and obsolete. In 2016, The Economist wrote that GDP is “increasingly a poor measure of prosperity,” and that “it is not even a reliable gauge of production.” Harvard Business Review added to the chorus, labeling the GDP as “wildly flawed,” as did Bloomberg View, calling it an “an imperfect measure.”
This mounting dissent has many sources. Critics cite that GDP doesn’t measure environmental impact, social well-being or growing inequality. But a particularly troubling problem for economists is thatDP simply takes too long to calculate.
Too Little, Too Late
“Economists need faster access to accurate information about growth,” wrote Bloomberg’s David Shipley. He said this is especially true during recessions when economists and policymakers are on tight deadlines to craft solutions. Currently, GDP is reported quarterly, but even then, those numbers can be corrected years later.
For example, 2008’s Q4 GDP original growth estimate was a contraction of 3.8 percent. However, years later, this figure was revised to a contraction of 8.9 percent. This lag time on GDP hinders policymakers ability to govern.
“In order to respond to the economic trends and needs of current populations, it’s vital that we have up-to-date figures,” said Sean Tennerson, a University of Berkeley-trained economist. “It is also necessary to better understand the outcomes of current policies in the short term.”
A Live-feed on the American Economy
Howard Schultz, CEO of Starbucks, also believes in the importance of this real-time data. “I called the White House after the (2013) government shutdown,” he told Foroohar in their Time Magazine interview. Schultz said that Starbucks’ figures showed “that leading into the shutdown and for weeks afterward, we saw a significant drop in consumer spending.” Schultz was demonstrating another application that real-time data on the economy — it can serve as a deterrence of political partisanship.
From avoiding political gridlock to crafting more effective policy, the applications of real-time economic data are promising. Creating more timely ways to measure the economy “should be a high priority,” said Tennerson. “Given the huge improvements in data tracking and machine learning, the opportunity for improvement is huge.”
