Newton’s laws of motion and gravity are often applied to economics and the stock market. What goes up, must come down. While this generally explains a natural path of the economic cycle, the key question for most investors is: When will it come down?
While no one can predict market directions with exact accuracy, economists look to a number of leading economic indicators to help anticipate the next phase of the business cycle and the potential for a period of growth or recession. Some of the leading indicators include:1
- Durable Goods Orders — These track when businesses order new big-ticket items, such as machinery, automobiles or commercial jets. When the economy weakens, companies keep older machines running longer to save money and orders cut back, but once the economy strengthens, durable goods orders increase.
- Manufacturing jobs — Likewise, when factories receive more orders for durable goods, they hire more people to produce them.
- Building permits — These gauge the health of the real estate industry. Strong starts in building permits generally indicate a nine-month lead in new home construction. When permits fall, that’s an indicator that the demand for new housing is dropping, which can mean there are other factors affecting the real estate market.
There may be economic indicators you can detect in your own life. It’s easy to track when prices increase at the grocery store or at the gas pump. The interest on your credit cards may increase. The balance of your investment accounts may rise or fall faster than normal.
It’s important to pay attention to these economic clues in order to make adjustments to your financial strategy to help ensure that changes in the larger economy or investment markets don’t impact your current lifestyle or long-term financial plans. Please give us a call if you’d like help ensuring your financial strategy is on target with your goals, tolerance for risk and investment timeline.
The following are some of the indicators that Bloomberg tracks to monitor the global economy:2
- Global Purchasing Manager Index (a number above 50 signals expansion): 52.2 in September
- S. Employment: +134,000 new jobs in September
- S. Consumer Spending: +0.3 percent in August
- S. Personal Consumption Expenditures (the Federal Reserve’s preferred measure of inflation): +2.2 percent in August
You can bet these indicators also are watched closely throughout the world. Goldman Sachs’ analysis of historical data indicates that when America experiences a recession, there’s approximately a 70 percent chance that other developed economies will follow suit.3
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1 Kimberly Amadeo. The Balance. Sept. 10, 2018. “Leading Economic Indicators and How to Use Them.” https://www.thebalance.com/leading-economic-indicators-definition-list-of-top-5-3305862/. Accessed Oct. 8, 2018.
2 Bloomberg. Oct. 8, 2018. “The 12 Global Economic Indicators to Watch.” https://www.bloomberg.com/graphics/world-economic-indicators-dashboard/. Accessed Oct. 8, 2018.
3 Simon Kennedy. Bloomberg. Sept. 16, 2018. “Goldman Sachs Doesn’t Share Wall Street Fears of 2020 Recession.” https://www.bloomberg.com/news/articles/2018-09-17/goldman-sachs-doesn-t-share-wall-street-fears-of-2020-recession. Accessed Oct. 6, 2018.