I think with all the ongoing changes in terms of tokens, gathering talents etc., it would be hard to judge activity by the auction house. Probably only a minority of players generate most of the "action" there.
 

AH activity is a better proxy than none but the results would still be relatively anecdotal since they apply only to your server and miss huge player-bases (such as though running old raids for gold and trasmog or those never leaving their garrison). There are also AH/player activity disconnects. New content creates a small bump in player activity but a huge bump in AH activity. You will also have issues with speculators masking the overall trends.

The Undermine journal would give better global coverage, but it would still be a mediocre proxy
 

I'm somewhat annoyed at the opacity of game companies as to the number of subs and the actual population density of the realms.

And they all do it. Counting "trial" accounts as the same weight as paying subscriptions, counting "matches" played as unique players, etc. You just can't trust most of the "data" they deign to show you.

That said, AH activity is seller side only, you never see the impact of buyers. But if you assume all things are equal and proportional, and you pretty much have to considering the opacity of the real information available, total AH listings is as good a metric as any.
 

I don't really have an opinion about that, but I'd like to add two things to think about:

The difference in auction house numbers might be because it's now so easy to make a lot of gold through garrison missions (maybe cata raids solo farming, I can't tell if that's different from previous expansions) or maybe just because of the professions revamp (that would depend on the specific goods you scanned) - it's easier to level up professions, you don't need to have them maxed and you need them less (less gems, less enchantments etc.).
 

How much fish/flesh is on your auction house compared to before the bot ban wave?
 

There used to actually be a census mod that you could install. When you told it to scan it would start doing a /who command based on level, and names if level results were too large. It would do a complete scan and could tell you how many players of what levels were on your server and faction. I think it also did character class as well. Anyways you could let it report to the authors server which would post the results for all to see.
 

http://www.wowinterface.com/downloads/info18316-CensusPlus.html

That's a current version of the mod I believe.
 

What's interesting overall is that - statistically, yes there should be a correlation - but how is it with 7 or so million players there are only 35,000 auctions?

That's a really low uptake for a primary feature. That's interesting.
 

The Standing Dragon:

That's only the auctions on one server. There are many servers.
 

Like most stats, it is not perfect but better than nothing.

I would think that value (qty * price) might be better to deal with the posting 500 singles from an addon malfunction or jerk.