Signs Of Global Economic Recovery

advertisement

What should an ordinary investor do, given that business television economists appear to live to disagree? What should a resurgent economy look like? Watch for indications of a revival in these economic indicators.

Employment

It's tough to talk about a recovering economy when people aren't returning to work. "Jobless recoveries" occur when there is enough economic growth to get enterprises rolling again but not enough to encourage hiring.

In most situations, however, investors are correct in associating an improved economy with individuals returning to work. As a result, onlookers frequently place a high value on the stated unemployment rate. However, keep in mind that unemployment data isn't always dependable in the initial stages of recovery; the method's quirks omit those who have given up looking for work.

Consumer Spending

Consumer spending drives the global economy, for better or worse. As a result, it's impossible to foresee a recovery without a resurgence in consumer spending. Consumers may recognize that they should spend less and save more in the long run, but this type of reorganization does not happen overnight. Consumers opening their purses is a sign of recovery.

Consumer Sentiment

Perhaps it's a monument to the power of optimistic thinking, yet mood indexes like the Michigan Consumer Sentiment Index and the Consumer Confidence Index (CCI) appear to more often than not coincide with reality. These polls inquire about people's opinions on the economy's near-term prospects as well as their own personal or family prospects.

In the end, feeling is a self-fulfilling prophecy; if people are constantly reminded of how horrible things are, they are more likely to be frugal with their money. Lower expenditure will, in turn, exacerbate the economic downturn. On the other hand, more optimistic people are more inclined to spend money, establish or develop small enterprises, and engage in other activities that promote economic growth.

Business Indicators

Consumer sentiment about the economy is important, but it must be matched by confidence and growth in the corporate sector. The Purchasing Managers' Index (PMI) examines whether firms are receiving new orders, raising production levels, timely delivery from suppliers, and expanding inventory and employment, all recovery indicators.

Bank Lending

While public firms are not wholly reliant on banks to develop, the majority of tiny non-public enterprises are. Small firms cannot develop until banks underwrite new loans, and without that expansion, more employment and a steady recovery are unlikely.

The Federal Reserve publishes data on bank lending activities on a regular basis, and investors may want to check out the Thomson Reuters/PayNet Small Business Lending Index to see if small firms are looking for (and receiving) capital to expand.

Shipping Activity

Shipping activity is more difficult to interpret than other measures. Still, the underlying concept is simple: because most people buy items from "somewhere else," total economic activity is linked to the flow of commodities across the continent. The American Trucking Association's Truck Tonnage Index and the Cass Freight Index are two notable indices in this area. (This measure has its detractors, yet it can give insight on economic development and productivity.) 

See Similar Posts: