How’s our economy REALLY doing? Three key economic indicators

November 23, 2015

By Allison Videtti

How’s our economy REALLY doing? Three key economic indicators

three things that can tell you how the economy is doing

Every time I read the news, there’s another story about how the economy’s doing — and it seems like they all contradict one another. Low interest rates are great for homebuyers! But they’re also destroying our middle class. The housing market is coming back! But another bubble is in the works. The economy is recovering! But the stock market is slipping.

It’s exhausting, and after a while I have no idea how to make heads or tails of the headlines. Are we doing OK, or are we slipping back into the next Great Recession?

Obviously, the economy is complex. That’s why economists are paid the big bucks to decipher what’s happening. But I talked to one of our portfolio managers here at Alliant and got some great news: you actually don’t have to have a Master’s in Economics to understand how things are going.

Following these three indicators can help you figure out what’s happening in our economy:

The jobs report

You’ve likely heard news reports on the jobs numbers before. But those reports generally focus on how many jobs were added in the previous month and the current unemployment rate. Those are important parts of the jobs report, but there’s so much more to it than that. The jobs report also details the number of part-time workers, the types of jobs being added (healthcare, retail, etc.) and the average hourly earnings for employees. It also shows the average number of hours worked by employees.

If earnings are stagnant, workers don’t have more money to spend and put back into the economy. The same thing is true if hourly workers are working fewer hours. If there’s little change in those numbers, or if they fall, it’s a sign that the economy is sluggish.

The number of discouraged workers is also a telling sign of how the economy is doing. Discouraged workers are people who aren’t looking for work because they don’t believe there are jobs available for them, and a rise in that number could signal some negative things for the economy.

The full jobs report, called the “Employment Situation Summary,” is released monthly by the Bureau of Labor Statistics at bls.gov.

Housing stats

Housing stats are a good indicator of how things are going, but keep in mind that real estate markets are heavily influenced by what’s happening locally. So, take with a grain of salt any reports about “nationwide” home price trends. That’s like trying to look at a national weather forecast. Instead, look at your local market trends to get a better idea of how your own asset — your house — is affected.

To assess the economy as a whole, however, focus on bigger-picture reports such as new construction starts (how many new homes builders have started building), new home sales (how many newly-built homes have sold) and existing home sales (home many “used” homes have sold). If builders are building, and people have the cash to buy homes, it’s a good sign the economy is doing A-OK.

You can find housing starts and new residential sales at Census.gov; they’re released monthly. Existing home sales are available through the National Association of Realtors at Realtor.com, and are also released monthly.

Consumer confidence

The Consumer Confidence Index® is a measure of how optimistic consumers are about the economy. The higher the number, the better consumers feel overall. The index focuses on consumers’ perception of the current economy and the current job market, and their expectations for the future. Our perception of the economy has an impact on our spending and saving habits, so a solid Consumer Confidence Index number is a good indicator that things are going relatively well. But don’t worry about a slight drop in consumer confidence. It isn’t a signal that things are spiraling downward — like every survey, the data sample (people interviewed, etc.) plays a role. A huge drop is a different story.

You can find the results of the Consumer Confidence Survey on The Conference Board’s website.

Surprised that the stock market isn’t on this list? Though every fluctuation in the market makes headline news, the reality is that many of the changes aren’t directly correlated to anything that’s happened in the economy, so it’s not a great indicator of how things are going overall. The perfect example is the recent surge in the markets, even as consumer wage growth has been modest. Investors move money in and out of the stock market all the time, and not always for reasons related to what’s happening in the economy at large. The markets shouldn’t be seen as a single measure of how things are going — even if it IS the number we hear about all the time. 


Sources: John MacDonald, Assistant Portfolio Manager at Alliant; Bureau of Labor Statistics; Conference-Board.org

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