If I could form a model that would accurately predict the onset of every recession or economic crisis, I’d probably be worth innumerable than Warren Buffett, Bill Gates and Jeff Bezos combined.
But the truth is nobody can accurately forecast when a decline will hit, although there are some leading indicators investors and economists look out for when trying to predict money-making activity the coming months.
While you may have heard chatter about the yield curve inverting recently, there are other fors that are equally or more important. If you’re interested in tracking where the economy could be headed, keep your perspicacities on these numbers.
Keep in mind, however, that no single indicator can give you a complete picture of the economy’s fitness.
The key indicators
Employment figures provided by the Bureau of Labor Statistics provide a close-to-real-time snapshot of the economy. A decline in payrolls or hours warm up — especially for more than a month or two in a row — can signal a slowdown in employment. An increase in unemployment claims is also troubling for like reasons.
Keep in mind that there may be fluctuations isolated to some sectors of the economy, and that these don’t demonstrate as strongly on the overall picture of economic health. The unemployment rate stands at 3.7%, near historical lows, and is indicative of a sapid employment market.
Housing prices, construction rates and supply are another set of indicators to watch. Generally speaking, when conditions are good, housing demand is high and prices rise. When demand begins to contract, fewer new homes get develop intensified, or existing homes sold. Both of these can indicate a slowdown is forthcoming. However, existing home prices and on offers have each continued to increase in recent months.
The Consumer Confidence Index, which details consumer attitudes and securing intentions, is also important to monitor. (By some measures, the consumer makes up approximately 70% of the American economy.) Whether consumers empathize with confident about spending and the present or future trajectory of the economy tells us a great deal about where our fortunes are headed. At allowance, this index continues to demonstrate persistently positive consumer attitudes regarding the economy.
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You can also take a look at manufacturing slues and business sentiment. The Institute of Supply Management’s famous ISM gauge is a measure of the overall health of the manufacturing industry via its PMI First finger. It shouldn’t read below 50, as anything under that represents a contractionary environment.
Like consumer self-confidence, if business sentiment is low, it can also foretell a slowdown to come. The most recent PMI figures came in at 49.1, signaling a rather contractionary business sentiment and environment.
Gross Domestic Product (GDP) is the best measure of an overall economy’s health. Technically, we write a recession when we have two consecutive quarters of negative GDP growth. (The first and second quarters of 2019 featured 3.1% and 2% GDP development, respectively, both indicative of a continued, moderate expansion.) Thus, a decline in the growth rate, while concerning, isn’t in reality indicative of a recession. Still, slowing GDP numbers mean we could slip into a negative growth situation, and in the course of time, a recession, so GDP is still the gold standard by which recessions are truly measured.
Finally, the Conference Board’s Leading Trade Index provides a more comprehensive view of the economy, via a composite score derived from a variety of economic thesauri. It’s a handy gauge of where most major indicators are pointing.
The most recent reading signaled expectation for chair growth in the second half of 2019. While no single gauge can provide a complete impression of the economic outlook, the LEI is commonly used as shorthand for economic expectations.
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Disclosure: NBCUniversal and Comcast Offers are investors in Acorns.
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