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Which are Reliable Indicators of a Strong Economy?

This article was written by in Economy. 11 comments.


One of the fun things about living in an Information Age is that we not only have near-instant access to financial data, but also a multitude of data sources to look at. It seems there’s a new report every day with updated economic news and forecasts.

We’d like your input about the economic indicators that mean the most to you. Press “Yay” in the following list for statistics that you think are serious reflections of a strong economy, and “Boo” for those you think are unimportant noise.

If you don’t know a term, or you’re just looking for a recent update, look here for a convenient list of many economic indicators. Or you could just ignore any terms that seem meaningless. That’s another benefit of living in an information age.

As always, if I’ve forgotten an important option, add it yourself, or leave a comment on this entry.

Published or updated March 26, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 3 comments… read them below or add one }

avatar Benjamin

Question 12 (About American having less debt) is one that I have been trying to answer for a long time.

Would the economy prosper or faulter if Americans only paid cash for things?

My initial thought is that the economy would spiral downward (much like it is right now). I am assuming of course that most people will spend all of their “disposable” income on paying off their non-mortgage debt. Eventually the economy would bottom out when Amercians finally had enough in savings to start spending again.

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avatar Rick

Benjamin, it would spiral downward for a period, but eventually find its level. Then it could grow again.

Growth is dependent on several factors.
1. Primarily, expectations of the future. Consider a baseline agricultural society. If, as a farmer, you foresee a poor harvest, you are not going to stock up and take risks with your crop or livestock. You’re going to make sure you limit risk and bring in as much as you can. This is the key to growth – an optimistic outlook for the future, the willingness to engage risk because reward is either well known or expected to be worth it.
2. Ability to leverage current or future surplus. Essentially, ability to take on debt. While this is not essential for growth, it’s huge engine for smaller economies as they foresee good times and take advantage of what they currently have to push for more. Leverage means the payoff can be lower for optimistic expectations because there is less at “risk” (though push this too far and you’ll undermine yourself).
3. Innovation. This single thing can create massive growth because it can ignite #1, but even if it doesn’t, it vastly changes the way things are viewed. The yoke was an amazing invention because suddenly huge amounts of land could be plowed quickly and easily, with little human effort. Imagine if you’re a farmer, you invent the yoke and your neighbor is still working by hand. Your view of the world will be tremendously optimistic.
4. Productivity. This is a side effect of optimism and/or innovation. Productivity means MORE for LESS. Which means more people benefit from the gains of growth. Luddites used to smash looms believing they cost people jobs and livelyhoods. Today, it’s clear the Luddite philosophy is backward thinking, as we employ more people at higher wages, with better livelyhoods than ever before. Still, we have many Luddites in the political class…..

So where does cash come in? Primarily in point 2. But as I said, it’s not essential. There can be growth in a barter economy, and indeed there is. There can be growth in an economy with salt as its currency (as it once was). There can be growth in an economy with gold as its base. But the reason fiat currencies work (as long as they are well managed and moderated) is that they help to grease the cogs of the leverage/risk engine. When gold was the basis of the economy, innovation found it hard to take root because growth was based on monetary velocity, which has limitations. With a fiat currency, you can have monetary velocity increase AND increase the amount of currency in circulation – much more enabling (if inflationary at times).

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avatar Rick

The best business cycle tool is ECRI
http://www.businesscycle.com/home/

These guys “get it” and are very good at what they do.

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