At WAIN Street we’ve just released the Business Default Index (BDX) which provides a comprehensive, composite gauge of business defaults in the US. Needless-to-say, we’re excited about many things, but most importantly we believe the BDX provides a new perspective on often-ignored mid-market and small businesses. It’s enabling us to “take the pulse” and gain new insight about this critically important segment of the economy. As with any proud parent, there is a risk of being overly optimistic about the significance of the BDX and we’ve been careful to temper our excitement with a healthy dose of skepticism. Taking a step back, we’ve asked ourselves a basic question: Is the index meaningful and does it actually reflect the reality of business defaults in the United States? It’s a tough question, but we’d like to share some of the data that’s convinced us the BDX has fundamental value.
As with any national composite measure, you’d expect some special relationships with other indicators. Direct default measures like loan delinquencies, charge-offs, and bankruptcies as well as high level indicators like GDP, Consumer Confidence, and unemployment should produce an intuitive narrative when compared to the index.
Comparisons to broad economic indicators like unemployment and GDP speak to the BDX’s reliability. Business defaults are intertwined with overall economic health and should behave consistently. Preliminary analyses conducted by WAIN Street demonstrate that the index is directionally consistent with macro-economic conditions. Additionally, the BDX leads GDP and the Gallup Economic Indexes suggesting some predictive potential.
BDX comparisons to data sets like the Federal Reserve delinquencies and charge-offs speak to actual validity. Validity means the index measures what it’s supposed to measure; the results are encouraging. The BDX has such strong leading correlations with quarterly Federal Reserve commercial delinquencies that we’re tempted to claim crystal-ball like capabilities.
But, we’re not there yet. More analysis with more data needs to be undertaken to fully understand the BDX’s implications. WAIN Street is merely scratching the surface. The art and science of this type of research requires collaboration and we seek others from industry, academia and government to collaborate with us in creating new insight and knowledge from this potentially rich resource.
If interested, please email WAIN Street founder Vidur Dhanda.
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