Exploring the economic indicators
Everyday some “economic indicator” or report is released and the financial markets respond with yea, nay or who cares. Today markets responded somewhat positively to news that leading indicators show the economy has slowed growth, but has yet to begin shrinking.
The Conference Board announced that the Leading Indicators show a sluggish, but growing economy. No surprise there, but what are these indicators? This particular set includes ten items (in layman’s terms): manufacturing hours worked per week, new unemployment benefit claims, stock prices, building permits, interest rate spreads, vendor performance, new orders for manufactured goods, consumer expectations, new orders for non-defense capital goods and real money supply.
Here’s a broad list of indicators and what their movements suggest:
GOOD: new unemployment claims were down, new orders for consumer goods were up, vendor performance was up, building permits were up, stock prices were up, interest rate spreads were up
BAD: non-defense capital goods orders were down, money supply is stagnant, average weekly manufacturing hours were down, consumer expectations were down
For the month of April, six out ten indicators showed positive changes. But the good barely outweighed the bad, since the overall index increased by just 0.1 percent. This is the second month of growth after a five month span of declines.
Some think that the growth in March and April confirms that the U.S. economy has narrowly escaped a recession. Do you trust the leading indicators as a barometer for the U.S. economy?
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POSTED IN: Economy, News, Uncategorized
3 opinions for Exploring the economic indicators
Joe Arena
May 20, 2008 at 11:58 am
I somewhat trust the economic indicators. Its important to note that measurements of growth include inventories and exports. Inventories are built up, but not sold yet. And exports don’t measure domestic consumption. Thats what I think.
Ben
May 20, 2008 at 12:25 pm
ProfSilver, It is interesting how the economy has reacted to these “Leading Indicators,” as well as other news in this time of high volatility. Personally, I have a decreasing level of confidence in these indicators. Many of them seem to call out the obvious; some of them do not even affect the market as one would think they would. Before March 17 (Bear Stearns bailout), when market confidence was at its lowest, it seemed like every piece of bad news crushed the market. Through the earnings period, there were instances that news, and earnings, could not be bad enough to deflate already beaten down stocks. A couple days ago, inflation was reported to be less than expected. Today, core inflation was reported as rising. The first boosted the market, the later dropped it. A couple weeks ago, financials fairly large midday when, in a speech, Secretary Paulson mentioned increased regulation for brokerages. This caused an immediate drop in the sector. Who was surprised by the mentioning of regulation?
Sean Keyvanfar
May 20, 2008 at 1:21 pm
Economic indicators are an efficient way of understanding the probabilities of a market trend. Some indicators are more important than others however, the CPI for example can provide multiple pieces of information with that one number. It can predict where inflation is going (seasonally adjusted), but at the same time, most union workers compensation is connected to the CPI index. Recently the CPI did not increase much (.2%), however, energy and food costs have been soaring, so if wages are not rising but costs are, that typically will mean lower profit margins coming 1-2 Quarters from now.
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