The middle market has historically been an opaque market. Now, a handful of organizations are trying to fix its fogginess by measuring changes over time with indices and indicators.
Thomas Stewart recalls an interesting predictive benchmark he once heard about Coca-Cola: When soda fountain sales rose, so would the economy. It’s not surprising that Coca-Cola would use soda fountain sales as a yardstick for the economy—the company owns roughly 42% of the U.S. carbonated soft drink market. However, Stewart, the executive director of the National Center for the Middle Market, says other organizations can find their own valuable benchmarks externally in market indices or indicators.
An index is a sampling of a market thought to be representative of the whole. All indices measure different data, businesses and markets. The two most disparate indices may be the Dow Jones Industrial Average and the S&P 500 Index, mammoths with different colored fur. The Dow is a price-weighted average of 30 large stocks featuring giant corporations such as Apple and Boeing. The S&P focuses on the stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. Despite sample-size differences, both are trusted and used as indicators of U.S. economic growth.
Small businesses have indices, too, including Wells Fargo’s Small Business Index and the National Federation of Independent Business’ Small Business Economic Trends. All indices track performance changes over time. The most useful indices can serve as a litmus test for a company’s chunk of the economy.