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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 3

As we finish our 3-part series on metrics, if you haven’t read Part 1, Lagging Indicators, or Part 2, Coincidence Indicators, click on the hyperlinks to read to get caught up.

 

The conclusion of the quest is near…

As we continue our quest, we’ve finally reached the final and last part of the series. By now, the hero of our story has navigated their way through a plethora of challenges until finally reaching the Summit (no pun intended, well maybe). Upon reaching the highest point and completing every math equation along the journey, our hero only has one last set of metrics to understand before completing this quest for statistical knowledge.  BRING ON THE LEADING INDICATORS!

 

Leading Indicators

Leading indicators, as predicted, are selected due to their potency in predicting economic activity.

 

These include:

·        Average work week, production workers, manufacturing

·        Average weekly initial claims for unemployment insurance

·        Manufacturer’s new orders for consumer goods and materials

·        ISM new orders index

·        Manufactures’ new orders for nondefense capital goods, excluding aircraft

·        Monthly building permits for new private housing

·        Stock prices

·        Leading credit index, M2 money supply prior to 1990

·        Interest rate spread between 10-year treasury bond and federal funds rate

·        Average consumer expectations for economic conditions

 

A common theme that can be extracted from the list above should be pretty evident from their names. New ‘orders’ or ‘expectations’ look at possible future purchases. These forward-looking metrics provide an outlook of those opportunities that are near-term wins in the pipeline. Some specific components of these measures and definitions may not be obvious, which we’ll hop into next.

 

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.

 

Leading Indicator specifics

Average weekly hours worked, production workers, manufacturing 

A key point in this metric that may not be obvious is productivity. Assuming the number of employees, hours worked, and productivity rate remains the same, the output should remain the same. Any changes in those variables could impact output and future orders. Also, when manufacturers project demand decreasing, they tend to reduce workers' hours before downsizing.

 

Average weekly claims for unemployment

To track this metric, follow President and Chief Investment Officer John-Mark Young’s weekly market update. He discusses current activities in detail and provides great insight.


ISM new orders index

This survey is aggregated with responses from ~300 purchasing managers nationwide.  ‘New orders’ should be self-explanatory, thus the focus on measuring demand. For this metric, remember the number 50. If these metrics report 50% or greater, this indicates increased order growth and is usually a sign of robust economic activity. If less than 50%, this suggests a contracting pace of demand in the economy.


Stock prices

This metric is measured as the monthly average for the S&P 500. Some economists question its inclusion since it does not reflect economic fundamentals and should not be considered as a gauge of future economic activity.

 

Leading credit index, M2 money supply prior to 1990 

This metric measures money circulation and deposits in savings, checking, CD, money market, and other liquid assets.  M1, M2, and M3 are all types of monetary aggregates. The Federal Reserve recognizes these; however, the leading economic index only uses the M2.


Average consumer expectations for economic conditions

This survey conducted by the University of Michigan Survey Research Center focuses on obtaining responses from consumers about their financial situation, spending trends, overall economic/financial situation, and some current issues/concerns.


Fin.

Thank you for joining me on this quest to conquer economic indicators and indices. It’s been a wild ride full of calculations, definitions, and aggregations (bonus points for anyone who can tell me how many times I used ‘aggregate’ in the last three posts!)

 

On this journey, we’ve built a foundational understanding of economic indicators, specifically looking at historical, near-real-time, and forecasting metrics. Both lagging and coincident indicators provide valuable information; however, both have improved value when the individual categories are aggregated as indices. Likewise, the leading indicator index (LEI) aggregates the list of leading indicators to provide a single data source. 

 

Remember, never depend on one metric or index to make financial decisions. Consider speaking with one of our financial advisors at Whitaker-Myers Wealth Managers to review the holistic picture of market activities and your portfolio.  Or schedule time to learn more about the data. We all enjoy a good, nerdy data session!

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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.

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