Sunday, March 19, 2017
Yamarone, The Economic Indicator Handbook
Having done his duty to his employer, Yamarone proceeds to discuss in eleven chapters the business cycle, GDP, labor market and employment, retail sales, NFIB small business economic trends, personal income and outlays, housing and construction, manufacturing, prices and inflation, confidence and sentiment, and the Federal Reserve. Most of the data come from publicly available sources.
Yamarone’s descriptions of the various economic indicators are perhaps the clearest I’ve seen anywhere. He explains what the indicators measure, how they are constructed, how they can be used, their strengths and weaknesses, sometimes how they can be tweaked to improve their ability to forecast changes in the economy.
For example, some economists chart the spread between two subsets of the Conference Board’s Consumer Confidence Index: the Present Situation Index and the Expectations Index. “The reasoning behind this strategy is simple: If the expectations index is less than the present situation index, generating a negative spread, the implication is that people are happier with where they are now than with where they see themselves in the near future. Conversely, a positive spread implies a belief that greater prosperity lies just around the corner, a good sign for spending and the economy. The wider the spread in either direction, the drearier or dreamier future conditions are expected to be relative to the present.” This spread has often been a good leading indicator. It “generally bottoms out just before a recession begins and peaks just after it ends.”
Yamarone slices and dices economic indicators, looking for their most predictive elements. He claims, for instance, that perhaps the single most important sentiment indicator is the trending behavior of the Conference Board’s 35-54 age group.
The Economic Indicator Handbook is useful both as a book to read cover to cover and as a reference book. That it comes with a lot of Bloomberg Terminal eye candy—beautiful charts and graphs—only adds to its value.