Christopher Conkey reveals (on page A2 of yesterday's print edition) how you too can divine the economic future:
Here is a guide to five telling indicators that will give early signals on the economy's direction.
Orders for capital goods
On Wednesday, the Commerce Department will release figures on new orders for durable goods -- items like turbines, computers and dishwashers that are meant to last at least three years. The headline number gets distorted by the volatile aircraft sector, so economists look to orders for nondefense capital goods excluding aircraft, or "core capital goods," to gauge how much equipment companies will buy in the near future.
A few months of upward movement is a good omen, suggesting manufacturers are confident enough to invest in expansion...
In a prelude to the robust growth in the first quarter, orders for core capital goods rose 6.2% between September and January. Orders were flat in January and fell 0.8% in February... Because it is impossible to spot a trend in one week, economists track the "four-week moving average" of claims...
Home-builder sentiment
The National Association of Home Builders/Wells Fargo monthly housing-market index gauges builders' attitudes about the climate for new-home sales..
NAHB readings above 50 mean the outlook is positive, and below 50 suggest times are tough. The index topped at 72 in June 2005, accurately predicting the peak in new-home sales the following month, and has declined steadily to 50. That is the lowest level in a decade, except for a brief period after the 9/11 attacks. David Seiders, the builders' chief economist, expects the index to decline further but to remain above 40.
Retail sales
The Commerce Department's monthly retail-sales report is an important signpost of consumer spending...
The bond market
After stubbornly refusing to respond to the Fed's increases in short-term interest rates, the bond market has pushed the yield on the benchmark 10-year Treasury note above 5%, the highest in nearly four years. While that creates opportunities for investors, it raises borrowing costs for businesses and pushes up mortgage rates. That, in turn, could damp growth prospects.
Oh, man. I was almost with him all the way. That last bit violates one of Dave's five key lessons from macroeconomics: Prices -- in this case, interest rates -- are what they are, neither good nor bad in and of themselves. It makes no sense to say that interest rates rising, and then to infer that this is a positive or negative for the economy as a whole (as opposed, perhaps, to particular sectors). The key question is "why are interest rates rising?".
I have for some time held that the housing market boom has in large part been a relatively passive response to low real interest rates driven by relatively weak investment demand in the US (with an appeal to the now well-traveled global savings-glut/investment-bust story). As business fixed investment and commercial real estate spending in the US turns around, we should anticipate rising interest rates, and another passive response in the residential housing market, this time in the direction of slowing. If that is the pattern that actually emerges, I am not convinced that slowdowns in home-building, home-buying, and home prices are harbingers of bad stuff to come.
UPDATE: On that interest rate point, note this, from Bloomberg:
German business confidence unexpectedly climbed to a 15-year high in April as growth in Europe's largest economy accelerated, prompting investors to increase bets on higher interest rates.
The article points to the ECB as the likely source of the higher interest rates, but we know better.