Economic indicators bring understanding to trends

Matt Chock

In recent months, the onset of a recession begs the question: What should people do with their money?

The stock market’s whimsical fluctuations make investments unpredictable, causing less market trading.

Fortunately, a number of economic indicators can help predict the movement of a company’s stock.

It is necessary to look at not only the company itself, but also how the economic climate surrounding it can affect its business.

“The goal is to get some idea of what the corporate profits are going to be ahead of time,” said Thomas Stinson, Minnesota state economist and associate University professor of applied economics.

Both the movement of inventories and consumer confidence can indicate whether a company will reach its expected earnings, added Thomas.

As a recession begins, companies prepare for expected sales drop-offs by reducing inventory.

Therefore, an increase in inventory signals a recovery might be beginning, as companies prepare for anticipated higher sales.

Two of the main indicators used to help analyze employee security are the Consumer Confidence Index (CCI) and unemployment rate.

The CCI survey asks participants what they feel the security and outlook of their jobs is for the near future.

The Conference Board and University of Michigan conduct the survey.

The University of Michigan survey is proprietary and therefore not published. However, The Conference Board survey is public.

According to The Conference Board, the CCI rose from 116.1 in May to 117.9 in June, showing increased consumer confidence.

The CCI increase shows consumers are more optimistic regarding the security of their future, and will probably be willing to spend more money.

The unemployment rate helps to relate the amount of business companies are doing.

If business is up, companies will need more employees to cover orders they receive, lowering the unemployment rate.

If the number of orders go down, companies have less work for their employees and will cut jobs to save money.

Looking at how a particular company’s work force fluctuates helps show the amount of business they are doing.

The unemployment rate also contributes to consumer confidence.

If employees watch people around them lose their jobs, they might not be as confident about their situation in the following months.

With a low confidence for their near future, people are more likely to save money for a rainy day rather than make a major purchase or invest in a risky market.

Said Buzz Lynn, a writer for indexskybox.com, a web based index trading newsletter: “With many traders sitting on the sidelines, the sentiment that economic recovery might not be just around the corner is beginning to sink in.”

 

Matt Chock is the Business Editor and welcomes comments at [email protected]