Economic Indicators as Predictive Benchmarks

The economy is in an enigmatic situation with stubborn inflation above the Fed’s targets, pretty much full employment, high interest rates with an inverted yield curve, stagnant home sales and many other real, perceived or anticipated problems.

The truth is that no one knows what will happen. Yet, every economist, financial commentator, and journalist has an opinion. There are dozens of economic indicators, and each so-called or self-proclaimed expert, with or without prestigious degrees, has opinions about the future of the economy while interpreting the same data.

The stock market provides an easy-to-understand illustration of how data is used to make decisions. Every stock sold is because the owner thinks it is too high but has a buyer that thinks it is too low. Of course, the known data is used but individual circumstances also factor in. This includes the investors’ time horizons, cash flow requirements, available capital, existing debt load, alternative investment sources, and perhaps their tax situation. Therefore, nothing with the economy is easy to understand or get a grasp on even with all the data that is available to use to factor into the decision.

Regardless of the data and how it is used and which data each person chooses to use, every bit of the data is a lagging indicator. It tells or measures what happened. None tell what will be. Astute analysts can review the data in ways that give them pretty good ideas of what might happen, but there can be no certainty. Crystal balls do not exist.

However, understanding the basic data can provide a guide, insights, confirmation of an existing plan, confidence, perhaps security and skepticism when confronted with recommendations that are not clear, and an ability to figure out whether the experts presenting recommendations understand what they are telling you.

I read, think, and talk about this stuff a lot and decided to present a program organizing many of the most reported indicators along with illustrations and a glossary. This is part of my continuing Take a Business Break series for the East Brunswick Public Library and will be on Zoom on Thursday, April 18, from Noon to 1:00 PM. It is free but you must preregister. All attendees will receive a PDF of the slides. This program will be a real eye-opener, with some of my cynical opinions sprinkled throughout the presentation.

Meanwhile economic indicators, while lagging indicators, can provide guidance for future changes, but not fully reliable guidance.

I hope to see you there.