A beginner's guide to understanding economic indicators.
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Insights from The Secrets of Economic Indicators
- The economy must expand by 3-4% annual rate to keep up with 150,000 new workers/month.
- Expect trouble when consumer debt exceeds 17% of personal income, especially when combined with a climbing interest rate and/or increasing unemployment.
- A nation's economic power is judged by its ability to produce goods when they're needed.
- Residential real estate is one of the first sectors to shut down when the economy nears recession, and it is the earliest to bloom when the economy starts to turn up.
Recommended Reading
The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities
Amazon Price: $19.79 (as of 07/13/2009) 
Guide to Economic Indicators: Making Sense of Economics, Fifth Edition (The Economist Series)
Amazon Price: (as of 07/13/2009)
The Atlas of Economic Indicators: A Visual Guide to Market Forces, and the Federal Reserve
Amazon Price: $12.21 (as of 07/13/2009)
Tools for Economic Forecasting
Best used in concert with the books featured above.
- Bloomberg.com
- An important source for financial news and information.
- Haver Analytics
- Provides insightful analysis of selected economic indicators.
- Schedule of Releases
- When the latest data will be released.
- Employment Situation
- The most-watched indicator. Look for 3-month trends in hours worked (manufacturing): less than 41 hours or greater than 41.5 hours.
- Weekly Claims -- Unemployment Insurance
- 400,000 is the magic number for initial claims. Look at a 4-week average.
- Personal Income & Spending
- Consumers will spend an extra 3-6 cents for every dollar increase in their portfolios; they will spend an extra 2-4 cents for every dollar increase in other wealth.
- Retail Sales
- Provides heads-up on future economic growth.
- Weekly Chain Store Sales
- Provides weekly insight on retail sales. Registration is required.
- Consumer Credit Outstanding
- Watch for the level of consumer debt relative to personal income.
- Consumer Confidence Index
- Indicates public opinion about the economy's strength.
- Durable Goods Orders
- Baumohl says: "Orders for durable goods trail off about 6-12 mos. before the onset of a recession."
- Business Inventories
- An I/S ratio of 1.5 is ideal.
- Industrial Production & Capacity Utilization
- Capacity utilization is a good leading indicator of business investment spending and can warn of growing inflation pressures.
- ISM Manufacturing Survey
- Baumohl calls it "most influential statistic released by the private sector".
- Index of Leading Financial Indicators
- Composite look at some of the best indicators.
- Housing Starts & Building Permits
- There has only been one instance of recession when the housing sector is strong. 1.5 - 2 million units started is healthy; close to 1 million or above 2 million means trouble.
- FRB Beige Book
- Released eight times a year, two weeks before the Federal Open Market Committee meets. An insight into what the Fed might be doing.
- International Trade in Goods and Services
- Indicates the balance of trade between the US and other nations.
- Consumer Price Index
- The state of inflation.
- Yield Curve
- Charts the relationship between interest rates and stocks over time.
