stages of development - International Business Growth Radio Network

FOUNDER SERIES: S10.2 - HOW CAN I TELL WHERE WE ARE? - WILLIAM EASTMAN

15/7/2022

Last week we covered the basics of economics and hopefully made it simple - there is a reason economics is called the 'Dismal Science'.

This week we build on those basics and focus on what are the indicators that indicate what is the state of the economy, where are we in the business cycle.

lThe place to start is which data to track and what does it tell you. We can parse the list into 3 general categories - Leading, Real-Time, and Trailing Indicators.

The Leading Indicators are used for predictions. It forecasts what will happen in the Real-Time. Inother words if things don't change what can you predict will happen.

Real-Time Indicators are like a weather report. What is the temperature, humidty, wind direction, cloud cover, etc. It is nothing more than reporting on the current situation.

Trailing Indicators are things that occur because of the real-time weather report but happen much later because of the feedback lag. The lag are those items that take time to develop and and happen after the fact.

EPISODE 5: Leading Economic Indicators

Yield Curve - 2 and 10 yesr Treasury Notes & Bonds, when the yield curve inverts where returns on the short-term notes is greater then the returns of long-term treasuries. It has predicted every recession since 1970.
Durable Goods Orders - large ticket items that are not necessities like automobiles, appliances, commercial jets. Are there reductions in purchases?
Stock Market - measures the value of specific stocks and the overall market; stock price represents the firms expected earnings.
Manufacuring Jobs - is an indicator of their confidence the economy is growing. Nobody wants to hire at the wrong time resulting in layoffs.
Building Permits - confidence in market growth with about a 9 month lag. Very few builders build on spec, they look for high levels of certainty the demand will remain.

EPISODE 6: Real-Time (Coincident) Indicators

Manufacturing Activity - is a very sensitive to the economy, nobody wants to increase inventory and production without buyers; it is a good indicator of what is happening across multiple economic sectors.
Short-Term Interest Rates - very sensitive to economy, the central bank (Federal Reserve in the US) is tasked to keep inflation low. Low rates means the central bank is trying to stimulate the economy and raise rates as growth creates inflation in prices
Inflation - the term is loosely used to define any increase in prices. The real definition of inflation is when a government over prints money destroying the value of its currency.

EPISODE 7: Trailing (Lagging) Indicators

Gross Domestic Product (GDP) - measures the size of the economy, the total value of all the goods and services sold that year.
Unemployment Rate - the percentage of unemployed of the total employed. One of the challenges of using this exclusively it only caputers the unemployed receiving benefits. If they find a job and fall off of benefits, their numbers are not part of the unemplyment metric. Use the Labor Participation Rate as a gauge of unemployment.
Balance of Trade - the difference between the total number of goods and services exported to imported. If your country is a net importer like the United States, then you are looking at comparisons over time. Another way of looking at it the flow money into an economy vs. the amount money leaving.

EPISODE 8: Taking the Economys Pulse