Finding Objective Data to Know If the Economy Is Really Recovering
The general mood could indicate economic recovery, but economists could debate endlessly on that. You need hard facts to come to a conclusion.
In stock trading and investing, you inevitably need to keep an eye on the condition of the economy. The economy influences everything you’re dealing with – the markets and thereby the stocks. The economic outlook influences investor outlook, and that filters to the stock market. So how are things with the US economy this year?
Looking at the early part of 2018 from the perspective of 10 years back, the economy has significantly recovered from 2008’s recession. But when the economy keeps growing in increasingly bullish terms, there is always the fear of tumbling down. It’s no different this year too, with analysts wondering if this bullishness can be sustained or whether a crash is waiting to strike. As a new stock trader or investor, the dissenting opinions of various economists could only confuse rather than enlighten. Freelance financial writer Stephen D. Simpson deals with the issue and offers some pointers for investors to know if the economy is in a sustainable recovery mode.
Jobs are a key indicator. They are the most fundamental signs of the health of an economy since all the growth and development should ultimately translate to people getting more job opportunities that help them earn and spend. Job generation is mainly in terms of people who were out of work due to the recession but are now finding work again. In some cases though, unemployment data cannot be considered to be reliable during the early recovery stages of the economy since there are some who abandon their hunt for work. When the economy’s recovery appears more evident, these individuals start their hunt for work and become classified among the unemployed.
Simpson points to the ASA Staffing Index that measures temporary staffing activity. Employers usually add temporary workers initially to avoid the commitments involved in getting full-time employees on board. In any case, activity in the index is an indication of an economic recovery.
The non-farm payroll is another indication Simpson points to. This metric indicates the number of people companies hire. This measure can tell investors how many people are added to the payrolls or subtracted from them. Non-farm payroll also tells you where employees leaving companies head to. You can also find out the places or sectors where wages are really trending.
In some rare cases of economic recovery, the economic activity is good enough to get businesses functioning profitably again though not sufficient enough for stimulating hiring.
Simpson then turns to the consumer spending aspect. Economies such as the American economy are stimulated by consumer spending. So an economic recovery will usually show itself through customers letting lose their money for various purchases. And you have indicators such as the Consumer Confidence Index (CCI) that measure consumer sentiment. These surveys get people’s opinion about the economy and their outlook towards it in the near term, as well as their opinion regarding the prospects for them and their family.
Sentiment is important, since only when people feel optimistic about their finances will they spend more or start businesses and stimulate the economy. If people are pessimistic, even if there isn’t always a reason to be so, they reduce their spending and the economy gets affected. Indexes such as the CCI as well as the Michigan Consumer Sentiment Index are therefore important indicators of the economy.
Lending to Small Businesses
The success of non-public small businesses is critical to the recovery of the economy. For this, banks need to underwrite new loans. Only then can small businesses grow. That will fuel further employment, leading to a stable recovery for the economy. The Thomson Reuters PayNet Small Business Lending Index specifically provides you information on small businesses’ loan activity. The Federal Reserve also provides information regularly on lending activities of banks.
With the objective data regarding these pointers available through the aforementioned metrics, you can filter through economists’ debates and opinions and make some informed investing and stock trading decisions. Advanced trading software can also help.
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