Historically after a financial crisis we have experienced upward trends in the economy. But, what benchmarks are the most reliable in determining when this will happen? There are many differing opinions on this from consumers and professional economists alike. The earliest clues are typically anecdotal, and then based on scientific analysis later on. Below I have listed some of the favorite indicators used to help determine when times are getting better.
Increases in consumer borrowing – Typically a weak economy forces more consumers to rely on loans. As an example a recent article by the Wall Street Journal discusses how consumers have increased their borrowing (non-real estate loans such as home mortgages) by $2.4 trillion, which is a 2.5% annual pace. 7% of this overall amount was contributed by larger ticket items such as autos, boats, washers, etc. as consumers are incented to purchase larger items when interest rates go down. As a result light vehicle sales are up 22.5% from this time last year.
Trends in the stock market – As the Dow and S&P repeat consecutive positive months, consumer confidence tends to rise. The stock market responds instantly to changes in the economy.
Jobs – When hiring increases (both permanent and temporary) and private sector average weekly hours worked increases are an early indicator that the economy is recovering
Housing starts and home sales – The National Association of Home Builders measures recent sales, expected sales, and prospective buyer traffic. The housing market index was at about 16 in January. The all-time low was 9 in 2009. There still seems to be a lag in this department however housing starts and home sales appear to be on the rise which is one of the best economic indicators of an economic uptick.
Cars – are one of the first big-ticket items that consumers buy when they start to feel good again.
Retail Sales – When consumers have more confidence in the economy you will see more discretionary income being spent again on items such as trips to the salon, Starbucks, home furniture, dining out, new cars, going to the movies, etc…
Pasta indicator – Pasta sales go up means it’s a softer economy. If pasta sales slow-down it means times are getting better.
The cardboard indicator – when cardboard prices go up it means people are shipping more products, which in turn means people are buying more.
Some anecdotal clues – Having to park farther from the mall entrance. Your contractor takes longer to return your phone calls
What indicators do you see now that lead us to believe the economy is turning around in Austin, Texas?