The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunitiesby Bernard Baumohl
For years, investors, business strategists, and policymakers worldwide have turned to one book to help them translate the massive flow of economic data into knowledge for intelligent decision-making. The Wall Street Journal called this book "…the real deal," saying it "miraculously breathes life into economic indicators and statistics." That book is/i>
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For years, investors, business strategists, and policymakers worldwide have turned to one book to help them translate the massive flow of economic data into knowledge for intelligent decision-making. The Wall Street Journal called this book "…the real deal," saying it "miraculously breathes life into economic indicators and statistics." That book is Bernie Baumohl’s classic best-seller The Secrets of Economic Indicators. Now, in a brand-new Third Edition, Baumohl has thoroughly updated his classic to reflect the latest US and foreign economic indicators, and brand-new insights into what all of today’s leading indicators mean. Baumohl introduces dozens of new, forward-looking economic markers, including those that monitor small business plans, freight traffic shifts, web searches, and even gambling. He also presents several real-time foreign indicators for anticipating swings in European and Asian economies. He explains what’s happened to the global and domestic U.S. economy in recent years, showing how financial crises impact investments, strategy, and economic indicators. New graphics more clearly illuminate how key indicators impact interest rates, bond and stock prices, and currency values; and hundreds of websites containing US and global economic indicators have been updated. This classic book has long been considered an invaluable resource by professionals who need to understand the true meaning of the latest economic trends. With this new edition, Bernie Baumohl has made it even more useful.
A shift of a single economic statistic has the ability to trigger intense action and reaction that can reverberate around the globe the instant it is released, affecting consumer prices, worker wages, fuel prices, mortgage rates, investment values, foreign exchange markets, and many other crucial elements of the global economy.
There are more than 50 economic indicators affecting financial markets that are released every week, month or quarter, including industrial production, job growth, retail sales, and new home construction. These indicators are so pivotal that the government takes extraordinary measures to control their flow. Economics reporter and consultant Bernard Baumohl has written The Secrets of Economic Indicators to help investors, brokers, portfolio managers, researchers, journalists and students understand what the numbers really mean, make sense of conflicting indicators, and learn how to spot impending changes in the U.S. economy.
Although economics and its measurements could easily become dry subject matter, Baumohl presents the release of these powerful numbers as a dramatic race to propagate valuable information to the world. He starts his book with a riveting tale from the "lock-up" room where the government releases the latest figures to a select group of reporters who must scramble to write their stories during a 30-minute frenzy behind locked doors and tight security and await the single second when they are allowed to transmit the reports they have compiled. As this powerful story unfolds, Baumohl describes the tension behind the exact moment when the reports are broadcast and the impact that the release of these statistics will have around the globe.
Before the rigid rules governing how these reports are released were developed in the 1970s, Baumohl explains, there was rampant manipulation of the economic indicators. This includes President Nixon's pressure on the Commerce Department to time the release of upbeat figures for maximum political impact, and the bribery of reporters to leak economic news to brokerage firms before writing about it. Today, he writes, nearly every major economic indicator is released under tight lock-up conditions, which has virtually ended trading based on inside information of economic indicators.
Throughout The Secrets of Economic Indicators, Baumohl explains how indicators can be deciphered for important information about the economy. With four key economic indicators released on a weekly basis, 43 every month, and nine each quarter, he writes that all of them are crucial to understanding the United States' complex economy. Although, he points out, there is no single indicator, nor combination of measures, that provides a complete picture of the future's economy, he describes how each indicator can provide "a snapshot of what conditions are like within a specific sector of the economy at a particular point in time."
After presenting the key phrases and concepts that are essential to understanding economic indicators, he describes in detail how all the major U.S. economic indicators are evaluated, and explains why each one is important to know and how it is computed. After providing the nitty-gritty of the indicator, he presents what the economic indicator says about the future and how bonds, stocks and the dollar might react differently to economic data. He writes that much depends on the specific economic indicator, its timeliness, the expectations of investors, and what else is going on in the economy at the time it is released.
The remainder of The Secrets of Economic Indicators presents a detailed overview of international economic indicators and why they are so important to American investors and CEOs looking to sell products overseas. Baumohl rounds out his book with a complete resource guide to the best Web sites for both domestic and international economic indicators, as well as other useful Web resources.
Why We Like This Book
Baumohl's two decades history as an award-winning TIME magazine economics reporter has prepared him not only to be able to write clearly and succinctly on the intricacies of economic data, but also to turn stark facts and figures into an entertaining tome that breathes with life and human drama while delivering crucial investment information. Copyright © 2004 Soundview Executive Book Summaries
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Read an Excerpt
"You want to write a book about what? Economic indicators? How did you come up with this death wish?"
That was the first response I got after telling a colleague at TIME what I was up to. She, too, was a financial journalist, so I expected some sage advice and support. We continued our conversation over lunch. "Did I hear you correctly?" she asked, still incredulous. "We are talking about your writing a book on economic statistics, right?" Yes, I nodded, and then went on to explain why this idea had been percolating in my mind for months. I knew it was a tough topic to write about, but I was ready to take it on. She listened patiently to my reasoning and then let loose a barrage of suggestions.
"First, let's get real here. To make this work, a book on economic indicators has to be sexy. Edgy. Really funny. Get in some lurid details about consumer prices. Tell some lascivious tales about industrial production and capacity utilization. Toss in lots of jokes on durable-goods orders. Then there's the humor that just springs at you when writing about foreign trade and nonfarm productivity. And . . . hey, shouldn't you be taking notes on all this?"
The appetite I came to the restaurant with was suddenly gone. Not because she was poking fun at the idea. Just the opposite. Beneath all that sarcasm was a genuine message that I knew had to be taken seriously. The subject of economic indicators can be lethally boring because of its impenetrable jargon and reliance on tedious statistics. I realized from that brutal lunch encounter that my biggest challenge in writing this book wasnot simply to identify and describe the world's most influential economic indicators, but to make the whole subject approachable and evendare I say itinteresting. My purpose from the start was to reach out to those who had little or no experience navigating the maze of key economic statistics and to dispel the notion that you need an economics degree, an MBA, or a CPA to understand what these indicators tell us about the economy and how we can use them to make better investment and business decisions.
The broader question, of course, is why do this book at all? Why should anyone outside the economics profession even care about economic indicators? Why is it important for the average person to know how many new homes are under construction, whether factories produced more or fewer goods in the latest month, or whether executives charged with buying raw material for their companies are increasing their orders or cutting back? Why bother with any of this stuff? Why not let the experts sort out the mishmash of economic numbers and tell us what it means?
Indeed, most Americans have little desire to follow such esoteric measures. They are content to rely on the insights of their investment advisers or hear television pundits muse endlessly about the economy and the financial markets. Other than that, few show interest in probing any further. However, that attitude changed abruptly in 2000 with the bursting of the stock market bubble and the collapse of the dot-com sector. Investors were sickened and then angered by the resulting loss of trillions of dollars in personal wealth. It made no difference whether the money was in one's personal savings, a 401(k), or a pension. No investment escaped unscathed. The decimation was universal, and for Americans, it became a painful and sobering reminder of just how much one's financial well-being was staked to the risky business of stocks and bonds.
Perhaps the most troubling revelation to come out of this awful experience was how utterly dependent ordinary investors had allowed themselves to become on so-called "experts" for virtually all investment advice. It turned out that these very "experts" veteran portfolio managers and longtime professional market watchersfailed miserably in their responsibility to help protect the assets and curb the losses of their investing clients. Worse still, investors became justifiably furious when they realized they were also being lied to by some of the companies they had invested in and even by the brokerage firms with whom they had entrusted their hard-earned money.
The result was predictable. Disillusioned by the ineffectual advice of their brokers, the seemingly endless revelations of corporate fraud, and the biased research reports put out by some well-known Wall Street firms, a growing number of Americans have since decided to venture into the investment world by themselves, trusting their own instincts rather than someone else's. These investors are emboldened by the fact that they can now access a huge assortment of information resources from home and work. They can even access them while traveling. There is, today, an unprecedented abundance of economic and financial news and analysis instantly available to anyone, anytime. This includes virtually 24/7 radio and television coverage of business news and, of course, hundreds of useful Web sites that offer valuable data as well as varied perspectives on the outlook for the financial markets and the economy.
How do the economic indicators fit into all this? Why should investorsor business executives, entrepreneurs, and ordinary workerspay particular attention to these reports? Because they are the vital barometers that tell us what the economy is up to and, more importantly, in what direction it is likely to go in the future. These indicators describe the economic backdrop that will ultimately affect corporate earnings, interest rates, and inflation. They can also influence the future cost of financing a car or house, the security of our jobs, and our overall standard of living. Even business leaders are under pressure to monitor economic indicators more closely. Knowledge of economic conditions in the U.S. enables CEOs to make decisions with greater confidence about whether to buy more equipment, increase inventories, hire workers, or raise fresh capital. In addition, for firms competing in the global marketplace, international economic indicators are of particular importance, because they allow executives to assess business opportunities abroad.
But how do you begin to evaluate these economic reports? There is such a bewildering variety of economic statistics in the public domain that following them all can be harmful to your health. New sets of economic numbers come out every day, week, month, and quarter, and they often tell conflicting stories about what's going on in the U.S. In addition, stocks, bonds, and currencies react differently to economic indicators. Some economic news can cause tremors in the financial markets, while other news produces no reaction at all. Many indicators have no forecasting value whatsoever, yet others have established an impressive track record of being able to predict how the economy will behave during the next 12 months.
Moreover, different indicators originate from different sources. The U.S. government pumps out loads of economic data through agencies such as the Commerce Department's Bureau of Economic Analysis and the Federal Reserve Board. However, numerous private groups also release market-moving indicators. One of the best known is The Conference Board for its Consumer Confidence and Leading Economic Indicators series. In addition, the National Association of Realtors reports monthly data on existing home sales, and Challenger, Gray and Christmas, the outplacement firm, tallies the number of announced corporate layoffs each month. Note that these sources just gauge U.S. economic activity. When you look at the assortment of economic indicators released by other countries, the quantity of information available becomes mind-numbing.
Clearly there is too much economic information out there, and not all of it is useful. So what do you focus on? How does an investor, a CEO, or even an economist decide which of the many gauges of business activity are worth tracking? Which indicators pack the greatest wallop in the financial markets? Which ones are known for doing the best job of predicting where the economy is heading? These are the key questions I try to answer in this book.
The book is organized in a way that I believe makes the most sense for you. Chapter 1, "The Lock-Up," begins with the drama that typically surrounds the release of a sensitive economic indicator. After the embargo is lifted and the economic report flashes across computer screens around the world, reaction to the latest news by global money markets can affect the financial well-being of every American.
One cannot successfully write a book on economic indicators without at least gently introducing a few basic economic terms. In Chapter 2, "A Beginner's Guide: Understanding the Lingo," I try to define as painlessly as possible those key phrases and concepts that are essential to know when reading about economic indicators.
The essence of the book begins with Chapter 3, "The Most Influential U.S. Economic Indicators." Here, all the major U.S. economic indicators are evaluated, and each one is discussed in a format designed to answer these vital questions:
Why is this indicator important to know?
How is it computed? (Sure, not everyone will want to get into the nitty-gritty details of how economic indicators are put together. Nevertheless, by understanding the underlying methodology of how they are calculated, one is better able to appreciate the usefulness of these indicators, as well as their shortcomings.)
What does the economic indicator have to say about the future? The purpose of this question is twofold. First you are shown how to interpret the official report and its accompanying tables. Particular emphasis is placed on the most interesting and useful data points in the economic release. Second, guidance is given on how to locate valuable clues in the tables that may offer you a heads-up on how the economy might perform in the months ahead. To make this task easier, copies of actual releases are included with most indicators covered in this book. Virtually all the economic releases mentioned are available on the Internet for free. You can read them on their respective Web sites or download the releases as PDF files. (Note that Internet addresses for the economic indicators are included in this book.)
How might bonds, stocks, and the dollar react to the latest economic reports? The financial markets often respond differently to economic data. Much depends on the specific indicator released, how timely it is, whether investors are surprised by the news, and what else is going on in the economy at the time.
Chapter 4, "International Economic Indicators: Why Are They So Important?," examines the most influential foreign economic indicators. Because the U.S. economy and its financial markets are closely integrated with the rest of the world, one can no longer afford to ignore measures of economic activity in other countries. If the economies of other nations are growing, they'll buy more from U.S. producers. On the other hand, poor growth abroad bodes ill for many large U.S. companies and their employees. In addition, American investors interested in buying foreign stocks and bonds for their own portfolios should track foreign economic indicators to identify those countries and regions in the world that might offer the most attractive returns.
Chapter 5, "Best Web Sites for U.S. Economic Indicators," is evidence of how much times have changed. Not too long ago, anyone interested in obtaining a set of current and historical economic statistics had to purchase them from a private number-crunching firm. The more stats you wanted, the more costly it was. Today, nearly all this data can be accessed instantly on the Internet for free! The democratization of economic statistics gives everyone, from the experienced professional to the weekend investor, the opportunity to download, read, and analyze economic information. In this chapter, I've assembled what I think are among the best and most authoritative Web sites for economic data. Again, all are free, though some may ask users to register.
Chapter 6, "Best Web Sites for International Economic Indicators," is a compilation of Web sites that enables you to quickly locate foreign economic data that might otherwise be tough to find. However, there's one important caveat to keep in mind: No country collects and disseminates as much high-quality economic information as the U.S. Its breadth and integrity make it the gold standard in the world. Although there is a vast amount of international economic data on the Web, one has to approach such sources with caution. There are issues concerning language (many are not in English), comprehensiveness, accuracy, and timeliness. In this chapter, I've listed sites on the Internet that in my judgment are the best and most trustworthy for international economic dataand that are available in English! Once again, every site listed is free (at least at the time of this writing).
Finally, let me close by saying that this book was fun to write, largely because I learned a great deal in the process. It is not meant to be a textbook or some intellectual treatise on the economy. My purpose throughout is to help give you a better understanding of how to look at economic indicators, why they can be so influential, what they might tell us about the future, and how people can best utilize all that information. If I have accomplished this in some way, than it was worth all the swearing and temper tantrums I went through every time my computer crashed in the course of this endeavor.
© Copyright Pearson Education. All rights reserved.
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Meet the Author
Bernard Baumohl, Chief Global Economist at The Economic Outlook Group, oversees its forecasts of economic trends and geopolitical risks. He also conducts seminars on how corporate leaders and investors can use forward-looking economic indicators to stay ahead of the business cycle. He has lectured on economics at New York University, Duke University, and the New York Institute of Finance.
Baumohl was also an award-winning TIME magazine economics reporter who covered Wall Street, the Federal Reserve, and the White House. As an economist for European American Bank, he conducted research on the global economy. He also served as an analyst with the Council on Foreign Relations. Baumohl has a Master’s degree in international affairs and economics from Columbia University.
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