October 2, 2018
On a nearly weekly basis, we get new reports from the Commerce or Treasury Department with nationwide updates on economic data. While this information is vital for financial markets and valuable indicators for multinational companies building out their short and medium-term strategy, its relevance for the real economy region-by-region is a bit murkier.
Determining which metrics matter the most to your metro area, and how it affects economic development going forward, requires quality data in large volumes so that you can draw more accurate conclusions on how national economic data relates back to your region.
Behind the Numbers
There are some obvious correlations: surges in soybean or corn exports are good things for agricultural regions like Iowa and increases in oil prices is good news for energy producers like Texas and Oklahoma. But what effect do soybean exports have on the commercial real estate market in Des Moines, or what does a $5 increase per barrel of crude mean for Oklahoma City’s office market? For that matter, at what point do increased energy costs affect Los Angeles’ commercial real estate market?
To take an accurate pulse on the myriad effects, it’s best to look at past data and measure the connection between shifts in the real estate market and shifts in macro economic data. When you see shifts happening inline with each other, you can start to draw conclusions.
Correlation or Causation?
Unfortunately, several of the standard methods to differentiate between correlation and causation are not easily available when determining the effects of macro shifts on a local scale. Controlled studies are not effective when working with interconnected variables, so the only accurate method is to conduct observational studies and gather as much data as possible before conducting a regressive analysis.
That being said, with the right data (and the right volume of data), the causal relationship between macroeconomic trends and local economic data become eminently discoverable. And with that information, it becomes much more possible to develop predictive analytics on the direction of your local commercial real estate market.