The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities by Bernard Baumohl

From the Publisher

Every day, stocks, bonds, and currencies bounce wildly in response to new economic indicators. Money managers obsess over those statistics, because they provide crucial clues about the future of the economy and the financial markets.
Now you can use these indicators to make smarter investment decisions, just like the professionals do.You don't need an economics degree, or a CPA... just this easy-to-use book.

Former TIME Magazine senior economics reporter Bernard Baumohl has done the impossible: he's made economic indicators fascinating. Using real-world examples and stories,Baumohl illuminates every U.S. and foreign indicator that matters.Where to find them.What they look like. What the insiders know about their track records. And exactly how to interpret them.
Whether you're an investor,broker, portfolio manager, researcher, journalist,or student, you'll find this book indispensable. Nobody can predict the future with certainty. But The Secrets of Economic Indicators will get you as close as humanly possible.

• What the numbers really mean...
  ...to stocks, bonds, rates, currencies, and you
• Ahead of the curve: spotting turning points
• Calling recessions and recoveries in time to profit from them
• Leading indicators: where's the economy really heading
• Decoding initial unemployment claims, housing starts, the yield curve, and other predictors
• Beyond the borders
• Why foreign indicators are increasingly important-and how to use them
• Making sense of indicators in conflict
• What to do when the numbers disagree
• Finding the data
• Free web resources for the latest economic data Investments

Library Journal

Baumohl, a former economics reporter for Time magazine, has written a tremendously useful source on economic indicators. Using examples from real life, he starts out by explaining in detail the importance of these indicators to the investing community and defining the terms used when discussing measures of economic performance. The most valuable section of the book provides detailed descriptions of over 40 economic indicators, among them employment, consumer spending, national output and inventories, housing and construction, foreign trade, and productivity and wages. Baumohl considers a variety of factors when describing each indicator, such as what exactly it measures, how it is computed, where to find the relevant report on the web, the day and time this report is released, the source of the information, and how often the information is revised. He also discusses the market impact of these indicators on bonds, stocks, and currency. The book ends with profiles of international indicators and a listing of where to locate them on the web. Bottom Line Although this book is marketed as a tool for investors and is not organized like a typical reference book, it belongs in the reference collection because it explains so clearly what the various economic indicators are and how to locate data about them. Recommended for all libraries.-Stacey Marien, American Univ. Lib., Washington, DC Copyright 2004 Reed Business Information.

Soundview Executive Book Summaries

Hidden Clues to Future Economic Trends and Investment Opportunities
A shift of a single economic statistic has the ability to trigger intense action and reaction that can reverberate around the globe the instant it is released, affecting consumer prices, worker wages, fuel prices, mortgage rates, investment values, foreign exchange markets, and many other crucial elements of the global economy.

There are more than 50 economic indicators affecting financial markets that are released every week, month or quarter, including industrial production, job growth, retail sales, and new home construction. These indicators are so pivotal that the government takes extraordinary measures to control their flow. Economics reporter and consultant Bernard Baumohl has written The Secrets of Economic Indicators to help investors, brokers, portfolio managers, researchers, journalists and students understand what the numbers really mean, make sense of conflicting indicators, and learn how to spot impending changes in the U.S. economy.

Although economics and its measurements could easily become dry subject matter, Baumohl presents the release of these powerful numbers as a dramatic race to propagate valuable information to the world. He starts his book with a riveting tale from the "lock-up" room where the government releases the latest figures to a select group of reporters who must scramble to write their stories during a 30-minute frenzy behind locked doors and tight security and await the single second when they are allowed to transmit the reports they have compiled. As this powerful story unfolds, Baumohl describes the tension behind the exact moment when the reports are broadcast and the impact that the release of these statistics will have around the globe.

Rigid Rules
Before the rigid rules governing how these reports are released were developed in the 1970s, Baumohl explains, there was rampant manipulation of the economic indicators. This includes President Nixon's pressure on the Commerce Department to time the release of upbeat figures for maximum political impact, and the bribery of reporters to leak economic news to brokerage firms before writing about it. Today, he writes, nearly every major economic indicator is released under tight lock-up conditions, which has virtually ended trading based on inside information of economic indicators.

Throughout The Secrets of Economic Indicators, Baumohl explains how indicators can be deciphered for important information about the economy. With four key economic indicators released on a weekly basis, 43 every month, and nine each quarter, he writes that all of them are crucial to understanding the United States' complex economy. Although, he points out, there is no single indicator, nor combination of measures, that provides a complete picture of the future's economy, he describes how each indicator can provide "a snapshot of what conditions are like within a specific sector of the economy at a particular point in time."

Investor Expectations
After presenting the key phrases and concepts that are essential to understanding economic indicators, he describes in detail how all the major U.S. economic indicators are evaluated, and explains why each one is important to know and how it is computed. After providing the nitty-gritty of the indicator, he presents what the economic indicator says about the future and how bonds, stocks and the dollar might react differently to economic data. He writes that much depends on the specific economic indicator, its timeliness, the expectations of investors, and what else is going on in the economy at the time it is released.

The remainder of The Secrets of Economic Indicators presents a detailed overview of international economic indicators and why they are so important to American investors and CEOs looking to sell products overseas. Baumohl rounds out his book with a complete resource guide to the best Web sites for both domestic and international economic indicators, as well as other useful Web resources.

Why We Like This Book
Baumohl's two decades history as an award-winning TIME magazine economics reporter has prepared him not only to be able to write clearly and succinctly on the intricacies of economic data, but also to turn stark facts and figures into an entertaining tome that breathes with life and human drama while delivering crucial investment information. Copyright © 2004 Soundview Executive Book Summaries

What People Are Saying

Hugh Johnson
Every business person or investor should keep a copy of Baumohl's book close-at-hand. It is great, at long last, to have someone who has eliminated what may have been so perplexing to so many and to have done so with such remarkable clarity.(Chief Investment Officer, First Albany)

Harry Domash
I find Baumohl's writing fascinating. Just about anyone who's serious about understanding which way the economy is headed will want to read this book. It could be a classic.(Columnist for MSN Money and Publisher, Winning Investing Newsletter)

David Wyss
This is the most up-to-date guide to economic indicators and their importance to financial markets in print. For anyone trying to follow the economic data, this should be next to your computer so that you can understand and find the data on the Internet. (Chief Economist, Standard and Poor's)

Allen Sinai
Bernie Baumohl has written a "must read" educational and reference book that every individual investor will find indispensable for watching, monitoring, and interpreting the markets.(President and Chief Global Economist, Decision Economics, Inc.)

Morris E. Lasky
Baumohl has a gift for taking a complicated subject and allowing it to read like a fast-moving novel. I recommend this book if you care about your future finances. (CEO, Lodging Unlimited, Inc.-manager and consultant for $6 billion in hotel assets; Chairman, Lodging Conference; Chairman, International Hotel Conference)

Alfred J. Weatherhead Jr.
I think this is an excellent book. It's well written, accessible to a variety of readers, deals with an interesting and important subject, and covers the topic well. It deserves to get a lot of notice and use. (Professor of Business Administration, Harvard Business School)

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Product Details

• ISBN: 0132447290
  
• ISBN-13: 9780132447294
• Format: Paperback, 401pp
• Publisher: Wharton School Publishing
• Pub. Date: August 2007
• Edition Number: 2
• Sales Rank: 40,948
• Series: Wharton School Publishing Paperbacks Ser.

• Table of Contents
• Forewords & Introductions

Table of Contents

Forewords & Introductions

From the start, reaction to my plan to write this book was warm and encouraging. "You want to write a book about WHAT? ----economic indicators? How did you come up with this death wish?"

That was the first response I got after telling a colleague at TIME what I was up to. She, too, was a financial journalist and so I expected some sage advice and support. We continued our conversation over lunch. "Did I hear you correctly?" she asked, still incredulous. "We are talking about you writing a book on economic STATISTICS, right?" Yes, I nodded and then went on to explain why this idea had been percolating in my mind for months and that I knew it was a tough topic to write about but I was ready to take it on. She listened patiently to my reasoning, downed a couple of drinks, and then let loose a barrage of suggestions. "First, let's get real here. To make this work, a book on economic indicators has to be sexy. Edgy. Really funny. Get in some lurid details about consumer prices. Tell some lascivious tales about industrial production and capacity utilization. Toss in lots of jokes on durable goods orders. Then there's the humor that just springs at you when writing about foreign trade and non-farm productivity. And...hey, shouldn't you be taking notes on all this?"

The appetite I came to the restaurant with was suddenly gone. Not because she was poking fun at the idea. Just the opposite. Beneath all that sarcasm was a genuine message which I knew had to be taken seriously. The subject of economic indicators can be lethally boring because of its impenetrable jargon and reliance on tedious statistics. I realized from that brutal lunch encounter thatmy biggest challenge in writing this book was not simply to identify and describe which are world's most influential economic indicators, but to make the whole subject approachable and ---dare I say it---even interesting. My purpose from the start was to reach out to those with little or no experience navigating through the maze of key economic statistics and dispel the notion that you need to have an economics degree or an MBA, or be a CPA in order to properly understand what these indicators tell us about the economy and how they can be used to make more informed and better investment decisions.

The broader question, of course, is why do this book at all? Why should anyone outside the economics profession even care about economic indicators? Why is it important for the average person to know how many new homes are under construction, whether factories produced more or less goods in the latest month, or if executives charged with buying raw material for their companies are increasing their orders or cutting back? Why bother with any of this stuff? Let the experts sort out the mishmash of economic numbers and they'll tell us what it means.

Indeed most Americans had little desire to follow such arcana. They were content to rely on the insights of their investment advisers or hear television pundits muse on endlessly about the economy and the financial markets. Other then that, few showed interest in probing any further. But this attitude changed abruptly in 2000 with the bursting of the stock market bubble and the collapse of the dot.com sector. Investors were sickened and then angered by the resulting loss of trillions of dollars in personal wealth. It made no difference whether the money was in one's personal savings, or their children's, a 401(k), an IRA or a pension. No investment escaped unscathed. The decimation was universal and for Americans it became a painful and sobering reminder of just how much one's financial well-being was staked to the risky business of stocks and bonds.

Perhaps the most troubling revelation of all to come out of this awful experience was how utterly dependent ordinary investors allowed themselves to become on so-called "experts" for virtually all investment advice. For it turned out that these very "experts" ---veteran portfolio managers and long-time professional market watchers----failed miserably in their responsibility to help protect or at least curb the losses of their investing clients. Worse still, investors became justifiably furious when they realized they were also being lied to by many of the firms they invested in and even by the brokerage firms with whom they had entrusted their hard-earned money.

The result was predictable. Disillusioned by the ineffectual advice of their brokers, the seemingly endless revelations of corporate fraud and the biased research reports put out by Wall Street firms, a growing number of Americans have since decided to venture out into the investment world by themselves, trusting their own instincts rather than someone else's. These investors are emboldened by the fact they can now access a huge assortment of informational resources from home, work, and even while traveling. There is today an unprecedented abundance of economic and financial news and analysis instantly available to anyone, anytime. They include virtually 24/7 radio and television coverage of just business news and of course hundreds of useful web sites on the internet that offer valuable data as well as assorted perspectives on the outlook for the financial markets and the economy.

How do the economic indicators fit into all this? Why should investors, or for that matter business executives, entrepreneurs and ordinary workers, pay particular attention to these economic reports? Because they are the vital barometers that tell us what the economy is up to and---more importantly---what direction it is likely to go in the future. Economic indicators provide the backdrop that will affect corporate earnings, interest rates and inflation. They also influence the future cost of financing a car or a house, the security of our jobs, and our overall standard of living. Even business leaders are under pressure to monitor the economic indicators more closely. They enable CEOs to make decisions with greater confidence on whether to buy more equipment, increase inventories, hire workers staffing and when to raise fresh capital. And for firms competing in the global marketplace, international economic indicators are of particular importance because they allow executives to assess conditions and opportunities abroad.

But how do you begin to evaluate these economic reports? There is such a bewildering variety of economic statistics in the public domain that following them all can be harmful to your health. Each day, week, month, and quarter new sets of economic numbers come out and often times they tell conflicting stories about what's going in the U.S.. In addition, stocks, bonds and currencies react differently to economic indicators. Some economic news can cause tremors in the financial markets, while others produce no reaction at all. Certain indicators offer valuable insights into the U.S. and global economy. A few have even established a track record for being able to predict how the economy will behave during the next 12 months.

Aside from the sheer number of different indicators released on a regular basis is the fact they also originate from varied sources. The U.S. government pumps out loads of economic data through agencies like the Commerce Department's Bureau of Economic Analysis and the Federal Reserve Board. But there are also numerous private groups that release market-moving indicators. Among the best known are The Conference Board's Consumer Confidence and Leading Economic Indicator series. The National Association of Realtors reports monthly data on existing home sales. Challenger Gray and Christmas, the outplacement firm, tallies the numbers of announced corporate layoffs each month. And these are just gauges of U.S. economic activity. When you look at the assortment of economic indicators released by other countries, the quantity of information becomes simply mind numbing.

Clearly there is too much economic information out there and not all of it useful. So which ones do you focus on? How does an investor, a CEO, or even an economist for that matter, decide which of the many gauges of business activity are worthwhile tracking? What are the indicators that pack the greatest wallop in the financial markets? Which ones are known for doing the best job at predicting where the economy is heading? These are the key questions I have tried to answer in this book.

The book itself is organized in a way that I believe makes most sense for the reader. Chapter 1 begins with the drama that typically surrounds the release of a sensitive economic indicator. Once the embargo is lifted and the economic report flashes across computer screens around the world, reaction to the latest news by global financial markets will ultimately affect the financial health of every American.

One can not successfully write a book on economic indicators without at least gently introducing a few basic economic terms. I have tried in Chapter 2 to describe as painlessly as possible a couple of important phrases and concepts that are essential to know when reading about economic indicators.

The essence of the book begins with Chapter 3. Here all the major U.S. economic indicators are evaluated, each one discussed in a format designed to answer the vital questions:

(1) Why is this indicator important to know?

(2) How is it computed? Sure, most people may not want to get into the nitty-gritty details of how an economic indicator is put together. Nevertheless, by understanding the underlying methodology of how they are computed, one is better able to appreciate their usefulness and shortcomings.

(3) What does the economic indicator have to say about the future? To what extent does it warn of upcoming turning points in business activity. The purpose of this section is twofold: First, it's to help the reader become familiar with an economic report and especially the accompanying tables; And second, it provides some guidance on how to cull valuable information from the economic data, such as finding clues that can give the reader a heads-up on how the economy might perform in the months ahead. To make this task easier, portions of the actual release are included with most indicators covered in this book. Virtually all of the economic releases mentioned are available on the internet for free, visible either directly on the web site or by downloading the release as a PDF file. Anyone can access them. All you need is the internet address and that is included here with the coverage of each economic indicator.

(4) How might bonds, stocks and the dollar react to the latest economic reports? They often respond differently to economic data. Much depends on the specific indicator released, how timely it is, whether investors were surprised by the news, and what else has been going on in the economy at the time.

Chapter 4 examines the ten most influential foreign economic indicators. Since the U.S. economy and its financial markets are closely integrated with the rest of the world, one can no longer afford to ignore measures of economic activity in other countries. If other nations are growing, they'll buy more from U.S. producers. On the other hand, weak economies abroad bodes ill for many large U.S. companies and their employees. In addition, American investors interested in buying foreign stocks and bonds for their own portfolio should track foreign economic indicators to identify those countries and regions in the world that may offer the most attractive returns.

Chapter 5 is evidence of how much times have changed. Not too long ago anyone interested in obtaining a set of current and historical economic statistics would have to purchase it from a private economic numbers-crunching firm. The more stats you wanted, the more costly it was. Today, nearly all this data can be accessed instantly on the internet by anyone absolutely free! The democratization of economic statistics gives everyone, from the experienced professional to the small "weekend" investor, the opportunity to download, read and analyze economic information on their own. In this chapter I've assembled what I think are among the best and most authoritative web sites for economic data. Again, all are free though some may request viewers to register.

Chapter 6 is a compilation of web sites containing international economic indicators. It allows the reader to quickly locate foreign economic data that might otherwise be tough to find. But there's one important caveat to keep in mind; no country collects and disseminates so much high quality economic information as the United States. It is considered the gold standard in the world. While there is a vast amount of international economic data on the web, one has to approach them with caution. There are issues concerning language (many are not in English), comprehensives, accuracy, and timeliness. In this chapter I've listed sites on the internet that in my judgment are the best and most trustworthy for international economic data---and are available in English! Once again every site listed is free, at least at the time of this writing.

Finally, let me close by saying this book was fun to write largely because I learned a great deal in the process. This was not meant to be a textbook or some intellectual treatise on the economy. My purpose throughout was to help people get a better understanding of how to look at economic indicators, why they can be so influential, what they may tell us about the future, and how people can best utilize all this information. If I have accomplished that in some way, then it was worth all the swearing and temper tantrums I went through every time my computer crashed in the course of this endeavor.

Bernard Baumohl
May 2004