It was a comment that Alan Greenspan made years before he became chairman of the

Federal Reserve

Board that gave me the idea for my book,

The Secrets of Economic Indicators

.

The occasion was at a

Time

magazine Board of Economists conference. Typically in such sessions, seven nationally known economists gather around a conference table at the magazine's main office and furiously debate the economic outlook. My job at the time was to moderate the session and get a story out that reflected the economists' views. Because I had been an economist for a Wall Street bank before joining

Time

to cover the economics beat, I was fairly familiar with the factors influencing economic activity. Or so I thought at the time.

I vividly recall that when it came time for Greenspan to speak, he suddenly brought up one obscure economic statistic after another to help support his forecast. No one else heard of or followed these measures. The other economists, apparently bemused, just threw glances at each other. Where and how did Greenspan ever locate these indicators? Later that day, when the economists and

Time

staff shared a working lunch, I sat next to Greenspan and drilled him. How on earth did he manage to locate these little-known nuggets of information, and do they really serve as reliable leading indicators of economic turning points?

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.

Bernard Baumohl has been Time magazine's senior economics reporter for two decades. He is an award-winning journalist who has covered the domestic and international economy from Time's New York and Washington bureaus. As an economist for European American Bank, he assessed global economic risks and developed forecasts on the U.S. economy. He also served as an analyst at the Council on Foreign Relations. A frequent guest on television and radio, he has lectured at New York University and Duke University. A recipient of the John Hancock Award for Excellence in Financial Journalism, Mr. Baumohl has a master's degree in international affairs and economics from Columbia University.

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