Leading economic indicators which are used as statistics in order to precede various economic events. They are used by the economist so that the next phase of the business cycle is predicted in a proper way. And right now, there are six facts that tell us how the US economy is doing.
Reports from March of 2019 show that the economy is doing well. Low unemployment rates, little inflation, and steady growth are known as the Goldilocks economy. A Goldilocks economy is when the growth is not too hot nor too cold.
A lot of jobs added in March
According to the Non-farm Payroll Report, the number of workers added to businesses and their payrolls each month are being surveyed by the Bureau of Labour. However, it does not count farm workers because of their seasonal nature of work. On average, a healthy economy will create 150,000 jobs. Companies will only add workers once they have enough demand to keep them busy.
According to the National Association of Manufacturers, the 12.75 million Americans who work in manufacturing earn an average of $84,832 a year, including benefits. But, the economy leads to a recession once the manufacturers start laying them off. If the previous year as compared to 2006, in terms of hired workers, manufacturers hired fewer workers starting in October 2006 than the prior year.
Last quarter of 2018 showed a steady growth
The economy is measured by the total value of everything produced in the country. The dollar value of everything produced, no matter if it is produced by the citizens or foreigners. The most important indicator is GDP growth compares this quarter with the last. In the last quarter of 2018, GDP growth was 2,2%.
The GDP growth between 2-3% shows that the economy is healthy. If it is above 3%, the economy could be overheating. On the other hand, growth below 2% brings a danger of contraction.
Weak Rise of Durable Goods Orders in January 2019
Beginning of this year, durable goods orders rose by 0,4% which is weak growth. Machinery, equipment and raw materials that businesses use in their operations are considered to be durable goods. The largest component of durable goods are commercial airplanes. The Boeing aerospace company makes up the lion’s share of commercial aircraft orders.
Businesses buy durable goods only when they feel confident about the future. Durable goods are pretty expensive, so businesses put off buying them until they are in a real need for it. The equipment must last at least three years in order to be considered a durable good. That is why durable goods are a great indicator of economic health.
YOY core inflation above target
Inflation means that you have to pay more for the same goods and services. And the YOY core inflation was 2,1%. The Federal Reserve monitors the core inflation rate because volatile food and gas prices are left out. Also, The Federal Reserve System prefers the year over year inflation rate for its removal of seasonal variations impact.
A target rate of 2% is set by The Fed in a year-over-year for the core rate. That level of inflation is healthy because the consumers expect prices to rise. The Fed use the inflation rate whenever they are deciding whether to raise the fed funds rate or not. The increased demand contributes to economic growth.
The PCE Price Index is the Fed’s inflation gauge. And it says inflation is rising. Although that usually means that the Fed would be more likely to raise rates, the Committee is worried about slowing growth. It stated that raising rates is not an option until 2021.
The stock market made a six-month correction during the last year
In August 2018, the stock market came out of a six-month correction period. And, as the stock market reflects the investor’s vision of the economy, it also shows corporate earnings and profitability. In the long run, stock prices avoid manipulating techniques that businesses use and they reflect demand and health of the economy.
When prices fall 10% from their high the market enters a correction. If the market had been sitting higher highs for a long time then it is a healthy sign. However, there is no reason to worry if other economic indicators are strong.
Stable interest rates indicate a healthy economy
Interest rates control how expensive it is to borrow for both consumers and businesses by the amount of interest due per period. When interest rates are low, businesses borrow more to invest in their companies. On the other hand, higher rates make the opposite thing happen.
The Fed funds rate is the most important because it guides most other interest rates. A healthy fed funds rate is 2.0%. And, the current fed funds rate is 2.5%. The second most important rate is the yield on the 10-year Treasury note. But, interest rates that are too low create a liquidity trap. They are too low for banks to profit from their loans. The only way that can be cured is by the rising interest rate. When that happens, people take out loans now to avoid higher rates later.