Looking Back, Looking Ahead

January is named after the Roman god Janus, who was portrayed as having two faces: one looking backward, the other looking forward. In a similar manner, economists like to look in both directions to better understand economic trends. But instead of two faces, they use economic measures called “indicators.”

Some economists consider unusual trends. For example, former Federal Reserve Chairman Alan Greenspan thought that sales of men’s underwear could be an indicator, because when times are tough, underwear is among the first purchases that men postpone. It’s also been suggested that an increase in coupon redemptions could be a sign of an economic downturn, while higher champagne consumption can signal good times.1-2

These may be fun to consider, but serious economic indicators focus on hard data. The most commonly studied indicators are tracked and published by The Conference Board, an independent research organization. Composite indexes of each type of indicator are designed to more clearly summarize and reveal economic patterns and turning points by smoothing out the volatility of individual components.3

IMAGE

Leading indicators garner the most attention because they may forecast the future direction of the economy. The Conference Board Leading Economic Index® includes 10 components:4

  • Weekly hours for manufacturing workers
  • Initial unemployment insurance claims
  • Building permits
  • Stock prices
  • Credit activity
  • Interest rate spread between 10-year Treasury bonds and the federal funds rate
  • Consumer expectations for business conditions
  • Three separate measures of manufacturers’ new orders

These all tend to signal potential shifts in the broader economy. For example, when unemployment claims drop or building permits increase, the economy may be improving. Conversely, a rise in unemployment claims or a drop in building permits could signal a downturn.

Coincident indicators generally move in step with the broader economy and may offer confirmation that the economy is moving in a particular direction. The Conference Board Coincident Economic Index® tracks four indicators:5

  • Employees on nonagricultural payrolls
  • Personal income
  • Industrial production
  • Manufacturing and trade sales

These factors help to define the current state of the economy.

Lagging indicators can help confirm that an economic trend has occurred in the past or is already in progress. The Conference Board Lagging Economic Index® includes seven components:6

  • Ratio of inventories to sales
  • Average length of employment
  • Consumer installment credit
  • Commercial and industrial loans
  • Prime interest rate
  • Labor costs in relation to manufacturing output
  • Consumer price index for services

These measures tend to move more slowly than the broader economy. For example, the recession officially ended in 2009, but wage growth (i.e., labor costs) has only recently begun to pick up speed.7

Although economic trends are important, it might not be wise to place too much emphasis on these indicators when making investment decisions. A sound investment strategy should be based on your time frame, goals, and risk tolerance.

All investing involves risk, including the possible loss of principal.

 
SilverTree Special Needs Planning
Scottsdale, AZ
20865 North 90th Place, Suite 110
Scottsdale, AZ 85255
Phone: 1.866.949.6202

Studio City, CA
12522 Moorpark St. Suite 110
Studio City, CA 91604
T: 1.866.949.6202

Thousand Oaks, CA
1337 E Thousand Oaks Blvd, Suite 202
Thousand Oaks, CA 91362
T: 1.866.949.6202

San Diego, CA
701 Palomar Airport Road, Suite 300
Carlsbad CA, 92011
T: 1.866.949.6202

Las Vegas, NV
1980 Festival Plaza Drive, Suite 300
Las Vegas, NV 89135
T: 1.866.949.6202

Phone: 1.866.949.6202

Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC)

Federal and state insurance and securities rules and regulations prohibit registered representative(s) and/or investment adviser representative(s) from soliciting, offering and selling any insurance or securities products or providing investment advice until they are properly registered and licensed in each state jurisdiction.

The registered representative(s) and/or investment adviser representative(s) listed on this website are licensed and registered in the following states:

We are licensed to sell Insurance Products in AZ,CA,IL,WA.

We are registered to sell Securities in AZ,CA,CO,IL,IN,KS,MN,NV,OH,OR,TX,UT,WA,WI.

SilverTree Special Needs Planning is not a subsidiary of nor controlled by Voya Financial Advisors, Inc.

This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. 

[ Online Privacy Policy | Privacy Promise ]