The numbers are dizzying and mostly depressing.
Every day the information floodgates open, releasing waves of economic numbers and stats we're told affect everything from the price of a loaf of bread to the number of for-sale signs in our neighborhoods.
The steady stream of information, experts say, is missing one key component: "Consumers aren't being told which economic indicators they need to pay the most attention to, and why," says Alan Schlottmann, the executive director of the Theodore Roosevelt Institute, a research and consulting think tank, and a professor of economics at the University of Nevada, Las Vegas.
Until now. Here are four indicators that not only affect your everyday life but are also useful in gauging the security of your job, your negotiating power, the car to buy and even when to sell your house.
Blue collar? Here's your indicator
The indicator to watch: the Purchasing Managers Index, or PMI.When to look for it: the first business day of each month.
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What it means: The PMI is a composite of five subindicators -- production levels, new orders from customers, supplier deliveries, inventories and employment levels -- that are extracted through surveys produced by the Institute of Supply Management. The surveys are sent to more than 400 purchasing managers around the country.
The PMI represents only manufacturing, not services, even though services "account for a very large portion of employment and output in the U.S.," says Frank D. Tinari, a past president of the National Association of Forensic Economics.
Tinari adds that manufacturing is considered a leading indicator and a good predictor of changes in gross domestic product (GDP) and even possibly the economy as a whole. An index value above 50 signals expansion in the economy; anything less than 50 signals contraction.
In the past 12 months, the index has ranged from 49.5 in June and July to a low of 32.9 in December. Economists were cautiously optimistic about March's value, 36.3, up 0.5 from February. That slight tick upward, Tinari says, means the economy is still contracting "but at a slower rate than before."
How it affects you: An unexpected, significant dip or a slumping trend is usually followed by a loss of manufacturing jobs in the coming three to six months. Tinari says it also shows up in lower prices on U.S.-made products. Conversely, a rising number, even one that's slowly inching up, can indicate that prices and manufacturing jobs are holding steady or increasing.
What you should do: Sudden changes are warning signs. And Tinari says any three- to six-month trend (up or down) should be watched. "Always keep in mind changes in excess of 5 points suggest shifts in the overall economy."
Ebb and flow is nothing new in the history of the PMI. Here's a look at what it's done during U.S. recessions since World War II:
| Recession | Average | High | Low | |
|---|---|---|---|---|
2007-09 | 44.4 | 50.8 | 32.9 | |
2001 | 43.4 | 46.3 | 40.8 | |
1990-91 | 48.6 | 54.9 | 39.2 | |
1980-82 | 43.1 | 58.2 | 28.4 | |
1973-75 | 54.1 | 72.1 | 30.7 | |
1970 | 46.2 | 51.5 | 39.7 | |
1960 | 47.1 | 61.5 | 42.6 | |
1957 | 45 | 53.6 | 36.8 | |
1949 | 41.3 | 57.3 | 31.3 | |
All-time low | 29.4 (May 1980) | |||
All time high | 77.5 (July 1950) |
Have a house to sell?
The indicator to watch: housing inventory.When to look for it: monthly. The National Association of Realtors releases its report on existing-home sales for the previous month at 10 a.m. ET on or around the 25th of each month.
What it means: Affecting anyone looking to buy, sell or refinance a home, housing inventory represents the number of months' worth of existing houses there are on the market. The current rate of 9.7 months' worth of inventory means that instead of buying an existing home, many are seeking roommates or bunking with family members. "That leaves a lot of homes without buyers," mortgage broker Todd Huettner says.
Luckily, the number is slowly creeping down; in November 2008, it was 11 months. "When the HI (housing inventory) hits five or six months, the number of homes for sale will not meet demand. Home values will improve, and new home construction will be needed," Huettner says.
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Decoding the indicatorsTodd Colvin of MF Global, Darin Richards of AKT Wealth Advisors and Durraj Tase of DT Advisors try to make sense of recent economic indicators.
How it affects you: The higher the number, Huettner says, the longer it will take to sell your home. "A high number creates a buyer's market because of the excess inventory. And a buyer's market tends to see home values fall, which affects sales prices and refi (refinancing) appraisals." Conversely, the smaller the number, the less time it should take to sell a home. "Normal (housing inventory) is about six months," Huettner says.
What you should do: "If possible, hold off selling or refinancing until the number edges downward," Huettner recommends. But if you are selling when the housing inventory is high, Huettner suggests negotiating a lower commission rate with your real-estate agent to offset the lower asking price the inventory will dictate. "They're more apt to wiggle on their rate when they have several listings," he says.
Would-be sellers and refinancers, take heart. As the number comes down, your home value should go up based on your region's home values. And we're currently trending down, something Huettner calls "a good sign." Here's a snapshot of how the Housing Inventory has been moving:
| Period | Supply of homes on market |
|---|---|
Average in 2006 | 6.5 months |
Average in 2007 | 8.9 months |
Average in 2008 | 10.5 months (highest since 1985) |
March 2009 | 9.7 months |
Continued: What is consumer confidence?
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