More Ways to Decode Economic Statistics

The private 30-minute chat that followed planted the seed for this book.

Clearly, we are bombarded with economic statistics each day, from a variety of government and private sources. Many of these statistics have only limited value. Some lack timeliness, whereas others are too volatile to be of analytical value. But there are numerous economic indicators that deserve closer study because they possess critical clues on where the economy, inflation, and interest rates are headed. Too often, however, these clues are either hard to locate or difficult to decipher. In this book, I wanted to show investors, as well as business leaders outside of finance, how to identify and analyze the most important U.S. and foreign economic indicators.

For example, this might seem counterintuitive, but there is no short-term correlation between consumer confidence and consumer spending behavior. We have had periods when confidence levels plummeted to near all-time lows, yet Americans that same period were buying cars and homes in record numbers. Is there a time-tested way to accurately predict consumer expenditures?

Yes. Follow the important triad: Employment conditions, real personal income growth and household net worth. Track these three, and you will know how 70 percent of the nation's GDP will perform. For the international economy, check out the details of the Global Purchasing Managers Index. It is based on reports from two dozen major countries that collectively account for 80 percent of the world's manufacturing output. It detects changes in industrial labor markets, prices, new orders, and much more.

My favorites for the emerging market are the economic indicators put out by Brazil and India. For the latter, the most influential inflation number is not consumer prices, but wholesale prices, which are actually updated weekly. All these indicators are available to readers on the Internet for free and usually in real time.

My goal in this book was twofold. First, I wanted to demonstrate the importance of looking beyond the economic headline numbers and encourage readers to dig into the reports to find those data points that offer valuable insights on the direction of the U.S. and international economy. Second, I wanted to make readers more comfortable locating and analyzing economic indicators and using these reports at work, whether their business is money management or manufacturing.

Oh, yes. Not to outdo Greenspan here, but a section has been added at the end of this second edition that looks at my version of some of the best economic indicators you've probably never heard of.