Posts Tagged ‘job openings and labor turnover’

New Indicators to Predict the Economy?

December 20, 2010

In the December 9 Forecast Friday post, I discussed the use of economic indicators when predicting a time series. In that post, I mentioned that when you use leading indicators to predict how your business is going, you should be sure that it is representative of your industry and that the indicator adequately leads your industry. Investment professionals, it seems, have been doing that for some time now. An article in the January 2011 issue of SmartMoney, “Finding the Market’s Buried Treasures,” talked about different statistics investment pros have been using to predict the way the economy will go.

The various agencies of government put out several economic reports each week, month, quarter, and year. Some are better known than others. Savvy investment pros have learned how to mine these different reports for lesser known, but more reliable for making predictions. The SmartMoney article mentioned that some pros are using Commercial and Industrial Loans data from the Federal Reserve, rather than the Fed’s quarterly bank-officer survey to predict bank lending activity; number of hours worked is supplanting number of people hired; the Job Openings and Labor Turnover Survey (JOLTS) is being used in place of the unemployment rate; and disposable personal income is being substituted for wage growth.

The metrics being supplanted aren’t useless or wrong. Rather, they are being replaced because they aren’t as good or relevant a predictor to the decision-maker’s business as they once were. In fact, depending on the nature of your business, the better known metrics may be more useful than the lesser known. You must truly understand your business before you can decide which statistics are the best indicators of activity for your industry.

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