Tuesday, April 7, 2009

We Need Leading Indicators Not Lagging

I've lost a little momentum with blogging, let's see if I can't get it back.

So a post I've been meaning to write for a while. It seems a favorite topic recently of blogs/media has been indicators the economy is not doing well.

These indicators can be helpful if they are leading indicators, that is we can notice there is a problem before it happens. A leading indicator example, if the mall parking lots are empty on the Saturday before Christmas, then we know Christmas sales will be bad. It is leading because it tells us what will happen before it happens. A lot of economic data takes a while to get released. Unemployment data is monthly, and GDP is 4 times a year and information on the previous quarter is released 3 months later. In other words we just found out two weeks ago the economic growth from Oct- Dec of last year.

As Meghan McArdle points out unemployment is a lagging indictor, so it shows us where the economy has been.

So where might we find a leading indicator in this economy. I think we want to know if consumer spending will recover, since that drives the US economy. So I'm going to go lots of baseball games this summer. If I notice people start to buy more snacks at the game, it will indicate they are ready to spend again in other parts of the economy.

Ok, I have no idea what a good leading indicator will be that people will start spending again, but I will be going to more baseball games.

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