The U.S.
economy, which has been booming for nearly a decade, appears to have
peaked. It's likely that the first quarter will prove to have been
the period of the fastest economic growth this year, according to a
July report from The Conference Board Inc., a New York-based
business-research group. U.S. market growth was projected to shrink
from 6% in the first quarter to 4.5% or 5% this quarter.
Each of the 10 indicators in the The Conference Board's Index of
Leading Economic Indicators is growing at a significantly slower
pace than it was six months ago. In fact, the percentage of the 10
leading indicators that are rising dropped from 70% in May to 50% in
July, even though the overall index still rose, according to The
Conference Board, which took over tracking the indicators from the
U.S. Department of Commerce a few years ago. In August, the index
dropped one-tenth of 1%, while the percentage of components that
rose fell further, to 40%, The Conference Board announced last
month.
The leading indicators with the greatest percentage drops were
the average weekly hours worked by manufacturing workers, the
average weekly initial unemployment insurance claims filed and the
interest rate spread (the difference between rates for 10-year
Treasury bonds and the overnight interbank lending rate).
Next were vendor performance (how fast firms are fulfilling
deliveries), the number of residential building permits and the
consumer-expectations index.
The only indicators that rose were the money supply (including
currency, savings deposits and money market mutual funds),
manufacturers' new orders for nonmilitary capital goods,
manufacturers' new orders for consumer goods and stock prices.
"None of these covers everything, but from historical analysis,
we know a composite index of these leading indicators gives a pretty
good picture of business cycles and signals the direction [in which]
the economy is heading," says Robert McGuckin, director of economic
research at The Conference Board.
You can find descriptions of the indicators, a detailed
explanation of how the index was created and a list of 250 other
indicators at The Conference Board's Web site (http://www.tcb-indicators.org/).
The number of weekly manufacturing hours worked shows whether
companies are hiring more labor. Building permits for housing
reflect whether people are confident enough or willing to buy homes.
New orders reveal how much demand there is for business and consumer
goods.
The consumer expectations index is derived from surveying
consumers on the economic prospects they expect for their families
and the U.S. in the next year and for the U.S. during the next five
years. It's the only indicator that's based on expectations rather
than statistics, which are based on what has actually happened.
If vendors have a backlog because orders are coming in fast and
furious, that tends to be a sign of a strong economy. Stock prices
reflect corporate profitability and performance and help determine
investment. If the interest-rate spread increases, it shows a
loosening of federal policy, generally resulting in lower interest
rates. And a healthy supply of money is, no surprise, good news.
Asked whether information technology professionals should pay
attention to any particular leading indicators more than others,
McGuckin says it's important to look at the overall index, because
no industry functions in a vacuum.
Nonetheless, special indexes were also created for the
manufacturing, financial services, labor and household sectors.
Be Aware of Your industry
Being aware of the leading indicators for the industry you're in
- for example, manufacturers' new orders and vendor performance if
you are in the manufacturing sector - may also be helpful.
"IS people in the retail industry, for example, would focus on
consumer confidence, unemployment claims and some coincident
indicators like employment figures and personal income, in addition
to the overall index," says R. Mark Rogers, author of The Handbook
of Key Economic Indicators (McGraw-Hill, 2nd edition, 1998).
Because the Internet industry is so idiosyncratic, The Industry
Standard (which is published by Computerworld's parent company,
Boston-based International Data Group ) compiles a weekly Internet
economy index, which measures the industry's strength with its own
set of six indicators.
Internet Indicators
The magazine's index includes online shopping (purchases of
consumer durables at more than 3,000 Web sites), traffic (how many
unique users age 12 and over surf the Web), stocks (share prices of
20 prominent Internet firms), initial public offerings of Internet
firms and performance (average download times of the home pages of
many major business Web sites).
Even "buzz" - the number of press-release headlines with the
words Internet or Web received by the magazine or distributed by
various wire services - is included.
"They have to be commended for trying," Rogers, says of The
Industry Standard's index. "But the Internet industry can't get away
from fundamentals that drive the overall economy."
Other indicators of the U.S. economy's performance - such as
employment figures, personal income, sales and industrial production
- are still growing pretty quickly despite the softening of leading
indicators, says McGuckin.
"We're looking for a soft landing, since we've been at an
unsustainable level - above the 'speed limit' for the U.S. economy
[3% to 4%] - for some time," says McGuckin. "That's how [Federal
Reserve Board Chairman] Alan Greenspan looks at it, and why the
Federal Reserve has been trying to slow the economy and raising
interest rates."
McDonnell is a freelance writer in Brooklyn, N.Y. Contact her
at sharonfmc@compuserve.com.
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