What Goes Up, Must Come Down

Newton’s laws of motion and gravity are often applied to economics and the stock market. While this generally explains a natural path of the economic cycle, the key question for most investors is: When will the stock market go 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 on orders and 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.

Economic Indicators in Everyday Life

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.

Adapt Your Investment Strategy

It’s important to pay attention to these economic clues in order to make adjustments to your financial strategy. This can 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:(512) 638-9499.

Key Economic Indicators for Global Investment

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 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

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.