Roger Cuddy

This is part 2 of a series. The lead post is at Conference Board Economic Indicators Part One .

Economic indicators such as the unemployment rate comprise a large part of the business news. Understanding the main indicators and their relationship to the overall economy will aid in understanding both the current economic condition and the most likely future developments. It’s well worth the time investment to learn the main indicators and how they relate to the overall economy.

Let’s start with some general characteristics applicable to all indicators. Indicators can be classified according to their correlation to the economy and their time relationship to the economy.

• By Correlation, does the indicator move in step or opposite the direction of the overall economy
  • Positively correlated indicators are referred to as Procyclic
    • Example, growth of GDP
  • Negatively correlated indicators are called Countercyclic
    • Example, the Unemployment Rate
  • Indicators not correlated to the economy are Acyclic and are of limited use for predicting or confirming movement
• By Time relationship
  • Leading indicators change before the economy does
    • Example, the stock market is forward looking and more indicative of expectations about future economic conditions than present
  • Lagging indicators change later than the economic state
    • Example, unemployment tends to continue rising for some time after a recession ends and the economy is on the upswing.
  • Coincident indicators that move in step with the economy
    • Examples, GDP, Personal Income.

The Conference Board publishes indexes of indicators corresponding to each temporal relationship. These indexes are widely followed and studied and the same applies to the components comprising the indexes. I will confine this discussion to indicators that are part of the Conference Board indexes but you should be aware there are other less widely used or published indicators. Some are quite fanciful such as the hemline and super bowl indicators. At the time I write this the ‘Hot Waitress’ indicator is garnering much attention. This table presents the individual components of the leading, lagging and coincident indicator indexes.

The Conference Board publishes a guide to their indexes that makes good reading both from understanding the indexes and general economic knowledge at well. You can get a copy at http://www.conference-board.org/publications/describebook.cfm?id=852 .

In the second part of these posts we will start to look at the leading indicators in depth. I’ll be coming back to this post and updating links to the others so just keep this one marked and you will be able to follow the whole series as I get it done.

8/25, Changed the title to make clear this is only covering the indicators included by the Conference Board.

Update: 2 July 2010, Don Boudreaux has an excellent letter to the editor that deals with the same topic and updated data. See Cafe Hayek

At last week’s get together I reluctantly agreed to attempt explanation of the real values concerning the decline of manufacturing in the US. The difficulty in explaining lies largely in the fact that it not true. The manufacturing industry in the US is not shrinking. Far from it actually. Similar to sectors, manufacturing is in dip during the current recession but the industry is alive and vibrant. The top graph here shows the Federal Reserve index values since 1939 for manufacturing output. Manufacturing output has almost doubled in the just the last 20 years. Notice also that the rate of growth is actually better the last 20 years than during the preceding periods.

So what is the doom and gloom about? Well, the increase in output has been accompanied by a decline in the sector employment as you can see from the next chart. These values are from BLS and are available to everyone the same as the reserve’s data. It’s import to look at both values together. It’s ‘common knowledge’ That US manufacturing moved overseas but that statement isn’t true. We produce more today than in the past. The reduced number of workers required to generate this production is due to productivity gains. This is similar to what occurred in agriculture earlier in the 20th century. Displacement of workers as an economic sector becomes more productive per worker is painful for those affected. The longer term impact however is extremely positive as those workers are now available to move into the newly emerging industries. Remember how manufacturing was able to grow only because of the ready supply of workers freed from farm labor. Rather than attempting to keep these jobs around we would be much better off to put that effort toward readying the displaced to step into new careers.

Note, reformatted the post to make it easier to read.

Every one should check out Shock: Global temperatures driven by US Postal Charges.

A well done bit of satire although too many may not even recognize it as such. The author uses logic every bit as sound as most of the drivel that is bandied around the climate change debate. No matter which side you are on you should be able to use this presentation to make fun of at least several of the other side’s arguments. Check out the original.

Original post edited to include chart from joannenova.com.au since several club members couldn’t access the image. At pman’s suggestion we also removed all tags. It’s fun and cool but don’t need this popping up on a search engine.

Recently there have been several occasions where I have needed an application to use an embedded driver but also needed to allow for the occasional login to the database externally while the application is executing. Derby works wonderfully for this and starting a server within the application is exceedingly simple. Here I will give just a brief example that should be enough to demonstrate the method. The code fragments here are admittedly simplistic but they work and show the principles cleanly.

//First a method to get an embedded connection:

public Connection getConnection() {

    try {

        return DriverManager.getConnection("jdbc:derby:"+dbPath);

    } catch (SQLException e) {

        log.error(e.getMessage(),e);

        return null;

    }

}

//Now a method to start the server for external connections.

private void startDBServer() {

	try {

		server = new NetworkServerControl(InetAddress.getByName("Localhost"),1527);

		server.start(null);

	} catch (Exception e) {

		log.error(e.getMessage(),e);

	}

}

//And lastly let's add a shudown hook to ensure the server gets a chance to exit clean.

private void setShutdownHook() {

	Runtime.getRuntime().addShutdownHook(new Thread() {

		public void run() {

			log.info("**** Application ending ****");

			try {

				server.shutdown();

				} catch (Exception e) {

					log.error(e.getMessage(),e);

				}

			}

    } );

}

That’s the basics and it doesn’t get much easier.

Poking fun at Minkiw’s 10 Principles. Yoram Bauman has several hilarious routines and this one at YouTube is great.

How great would it be to see a US senator or representative say this!

Jim Rogers covers a wide variety of current economic topics. I’ve always found Mr. Rogers to be very clear spoken in his beliefs. A fresh breeze when so many speakers will not commit to even their views.

If you’re a fan of Robert Schiller (Homepage, Wikipedia) then you should follow through his open course ware at Yale. Check out http://oyc.yale.edu/economics/financial-markets/content/sessions.html for the recorded lectures, notes and resources.