MARKET INDEX, a business indicator revealing the activ ity of one or more industries, or of the actual or potential capacity of a given district to absorb an article or service offered for sale. The "business barometers" which indicate financial, industrial, and commercial conditions may constitute market indexes reveal ing business activity, but provide no basis for estimating the sale of a particular item. The market index is more than a financial statement for the people of a district. It is rather a system of indicators which reveal the relative conditions of trading areas from which may be computed sales possibilities. The factors necessary for an effective market index are of three classes: (a) Those which indicate the pulse or the tempo of business—its rela tive activity—such as the barometers; (b) Those which show the ability to buy; the wealth available for buying; (c) Those which reveal the disposition to buy; (d) In addition to these, other in fluences such as climate, racial characteristics, and habits of living need to be considered.
(a) Business is as "good" or "bad" as it is above or below the average for the past five or ten years. The sale of electric current, car loadings, transactions on the stock market, bank clearings, department store sales, unfilled orders for steel, and the sale of machine tools are the more important factors used in the activity of business. The food industry varies little whether other industries are active or slack. Style materials, home furnishings, and luxuries are the goods which move rapidly in good times and slowly when business is poor. Other busi nesses like those of the cobbler, the hat cleaner, and second-hand stores thrive on "hard times." Increased unemployment, wages, and slackening retail sales presage in creased business for them. For most manufacturers, however, good business conditions mean more sales, more labour, more raw materials, and often increased operating capital.
(b) The ability to buy means wealth, especially wealth that produces income. It is reflected in such as the per caput of life and fire insurance in effect; income tax returns; automobile homes and deposits.
(c) Willingness to buy is not always found where wealth is greatest. Of course there must be resources with which to buy as well as a disposition to spend. This is reflected in retail sales, the number of dentists per thousand population, the number of new automo biles sold, and other purchases such as mechanical telephone rentals, at tendance at places of amusement, and magazine and newspaper circulation.
(d) No item has been found which year after year sells in direct proportion to the population. Salt seem to be such an article, but as it is used extensively in houses and to feed livestock, per capita sales are much in some districts than in others. So a market index for salt would require a factor to represent the number of cattle, sheep, and horses in the district. Tea is consumed in larger quantities by descend ants of Northern European stock than by native Americans or those of the Latin coun tries, so a racial factor must be represented in a market index for tea.
Other things being equal the sale of straw hats would be in proportion to the number of days in the year of "summer heat." But other things are seldom equal. Hence the index becomes com plex. The Negroes wear few straw hats, so they should be elim inated from the number of possible customers. The well-to-do buy straw hats more liberally than the poor. So a factor showing the ability to buy should be included. This might be the per capita sales of haberdashery stores. Men of the same town will buy more straw hats when business is good than when it is poor. So a factor indicating the activity of business is indicated. Com paring the possible sales of two districts would then depend upon the sizes of the two populations, excluding Negroes; the number of days of summer heat in each district ; the sales of haberdashery stores; and the comparative state of business in the two territories. This index, when properly computed, enables a sales manager to fix sales quotas for the different trading areas, to apportion ad vertising expenditures in proportion to sales potentials, and to forecast sales more accurately than by reference to past per formance.