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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

  • Writer's pictureSummit Puri

One metric to rule them all, or not. Part 2

As we start Part 2 of our 3-part series on metrics, focusing on lagging, coincident, and leading indicators, if you haven’t read Part 1, Lagging Indicators, click here to read to get caught up.

 

Near Real Time

Last week, we jumped into the deep end with historical data and indicators that ‘lag’ the market or show their full impact after the market changes. This week, we’re diving in and looking at coincident indicators. These indicators are measures that provide macroeconomic insight into the state of the economy in near real-time. The closest to real-time data, these indicators depict the business cycle’s activities in the recent past.  Coincident indicators closely track various turning points in the business cycle. For this reason, they are commonly used as benchmarks while assessing the relativity of economic metrics to the business cycle.  The reporting may have a long or short lag, depending on the metric. The coincident indicators, which combine to form the coincidence index, are the number of employees on non-agricultural payrolls, personal income less transfer payments, industrial production index, manufacturing and trade sales.

 

Keep in mind that the list of indicators may change in the future. Indicators have historically been replaced as the market changes to reflect appropriate reporting and needs.

 

Coincidence index: The coincident indicators

Number of employees on non-agricultural payrolls

The number of employees on non-agricultural payrolls is aggregated by a survey conducted by the Bureau of Labor Statistics (BLS) of ~140,000 businesses within the United States. This metric has consistently paralleled the gross domestic product (GDP). Considering that nearly 67% of the U.S. GDP is consumption-based, intuitively, as more citizens have jobs, they are more likely to spend on the economy.


Personal Income less transfer payments

This metric has two components: personal income and transfer payments.

 

Personal income consists of all household wages and salaries.

 

Transfer payments are governmental disbursements such as social security, food stamps, and veteran’s benefits. They generally cover rent, food, and basic necessities. Since they essentially net zero, transfer payments tend to have very little or negligible impact on macroeconomic activity. Excluding transfer payments from personal income appropriates this metric to align as an impactful economic indicator.

 

Industrial production index

This metric consists of over 300 components that represent mining, manufacturing, and utility industries. This is a weighted metric where weights are assigned based on the value each component adds during the production process. Due to the complexity of this calculation and aggregation lag, this metric is a more timely proxy for quarterly GDP (Gross Domestic Product).

 

Manufacturing and trade sales

The coincident index's last major component measures all domestic manufacturing and trade sales.  


In the 2/3 end

In every one of my metrics posts, I always highlight that economic metrics should never be taken in isolation. The indicators we’ve discussed so far are no exception. Though these metrics provide good information on their own, the impact of the aggregate should not be overlooked. For example, combining these coincidence indicators as the coincidence index correlates with a GDP of 0.88 (88%). Look at the graph below from “The Investment Advisor Body of Knowledge,” P230.



Though this data doesn’t extend to the present day, it is apparent that the aggregation of these metrics correlates with the GDP. We see this trend play out in more recent metrics, which is why economists have used these metrics to understand the state of the economy.

 

Next week, we’ll explore leading metrics as we wrap up this three-part series. Of course, in the meantime, if you have any questions for our team at Whitaker-Myers Wealth Managers or one of our Financial Advisors, schedule a time with them to discuss these topics and more.

Comments


Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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