Business Cycle Leading Indicators

Previous blogs have given information on the business cycle for our U.S. economy. Gross Domestic Product, GDP, is measured to see where we are in the business cycle.

Wouldn't it be nice to know where we are in the business cycle ahead of time? If we did we could make better investing decisions. We can get a picture by looking at something call leading economic indicators or the things that move ahead of the GDP measurement.

The leading economic indicators include:

• Building Permits
• Stock Market Prices
• Money Supply (M2)
• New orders for consumer goods
• Average Weekly Initial Claims in Unemployment
• Changes in Raw Material Prices
• Changes in Consumer or Business Borrowing
• Average Work Week for Manufacturing
• Changes in Orders for Durable Goods

The things I watch are:

1. Stock Market Prices - going up now after a decline
2. Money Supply (M2) - going up, increasing by about $200 Billion in the 1st Qtr 2008 alone. A few data points to illustrate the trend. (January 2007 = $7.1 Trillion, January 2008 = $7.5 Trillion, March 2008 = $7.7 Trillion)
3. Changes in Raw Material Prices - going up (I think that is more of a global indicator rther than just a U.S. indicator now)
4. Average work week for manufacturing - this should be going up due to value of the dollar relative to other currencies.

To me this indicates that our economy is not in a contraction mode. It appears to be in a trough or early expansion mode.

Bottom Line: Do not let the news get you down.