A shift from boom to bust, from economic expansion to recession, like the one we experienced in 2001, can be painful, even tragic, for those blindsided by the downturn. (Location 51)
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“The [worldwide] record of failure to predict recessions is virtually unblemished.” 1 (Location 55)
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Whether you are an employee or a student, a business manager or a policy maker, you can learn to navigate the economy's ups and downs. (Location 57)
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We will also tell you why many of the commonly followed economic indicators can be misleading. (Location 60)
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Why? Because there are both opportunities and dangers linked to the ups and downs of the business cycle that you need to know. When will the next turning point in the economy arrive? (Location 76)
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The fact is, with forewarning, the pain could have been considerably less. But the din of the late-1990s euphoria was simply too loud for most people to hear any voice not in harmony with the boom-market revelry. (Location 85)
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Few listened. Most kept upping the ante, convincing themselves and one another that any economic rough spots were only minor speed bumps. It was easy to be swept along by the enthusiasm of the New Economy. (Location 88)
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Most forecasters have forgotten the work of Mitchell, Burns, and Moore. (Location 100)
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investors held on to large positions in stocks because they believed double-digit returns would continue. Few factored the risk of a recession into their plans, and when one hit with the force of a falling Acme safe, many people were left feeling like the flattened Coyote. (Location 126)
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During the downturn of 2001, many businesses and individuals experienced this devastation firsthand. The severity of the drop was worsened by the extent to which CEOs believed the hype that recessions were a thing of the past. (Location 135)
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We correctly forecasted major economic turning points in the United States and abroad over the past decades. 6 (Location 157)
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key reason is that these forecasting models assume the recent past to be a good guide to the near future (see chart below). Most of the time this is true. (Location 164)
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The gap between such forecasts and reality balloons, resulting in large forecast errors. (Location 165)
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these cyclical indicators are specifically designed to predict future changes in the direction of the economy. They turn before the economy does. The focus is on the timing of a change in direction (see chart below). (Location 171)
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At ECRI we use a cyclical approach that incorporates about one hundred objective indexes to advise governments and central banks, investment managers controlling over a trillion dollars in assets, and global companies ranging from Disney to DuPont, as well as individuals. (Location 176)
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We have organized a wide range of select data into an array of leading indexes, or gauges, that will help to tell you the likelihood of a turning point taking place. Using those gauges, you can design your own “economic dashboard” to suit your particular needs. (Location 185)
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People whose line of work is sensitive to economic shifts, like fund managers and corporate strategists, will want to keep a sharp eye on their dashboard, watching the indicators' every rise and fall. Most of us, however, can monitor it less closely. (Location 190)
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Since 1790, the U.S. economy has experienced forty-six business cycles. Time and again people came to believe that business cycles had been banished, (Location 211)
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While every cycle need not exhibit a spectacular boom or bust, it is a sure bet that you will see more recessions and recoveries in the future. (Location 216)
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As a result, standard forecasting tools tend to work pretty well during upswings or downswings, but are blind to the inevitable shifts in the economy from one direction to another. (Location 226)
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The business cycle exhibits simultaneous upswings in output, employment, sales, and income, followed by similarly general downswings. (Location 375)
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New orders could therefore be used as a means of anticipating an imminent shift in production; in other words, it could be used as a leading indicator. (Location 381)
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Therefore, the average workweek should be a good leading indicator of employment. (Location 384)
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But manufacturing numbers are down, so the economy must be getting weaker, says another. Composite indexes rise above such debate by objectively summarizing the data without regard to any one person's opinion. (Location 415)
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as its main forecasting gauge and started releasing them in a new monthly publication called Business Cycle Developments (BCD). (Location 421)
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Mack's study demonstrated how the cycle becomes more pronounced the farther you get from the consumer, cascading in ever-larger cycles the closer you come to the earliest supplier in the chain. (Location 528)
The nosedive in IT growth, coupled with the ongoing slowdown induced by interest rate hikes and the oil price spike, was the final blow to the economy. (Location 750)
it. One key reason is the persistence of perceptions, this time blinding people to an economic upturn. (Location 787)
Accelerated by a global recession, this structural change was the unintended consequence of three long-term trends: the two-decade fight against inflation by the Fed and other central banks; (Location 789)
arrival—much too late for those who overextended themselves. (Location 802)
It is impossible to remove the cycle from a free-market economy. But by understanding the nature of business cycles and employing a cyclical view in your decision making, you can protect yourself from falling prey to “prevailing wisdom” the next time the cycle turns. (Location 814)
Decades of observation have shown us that during a typical recession, companies fire employees, incomes fall, spending goes down, and output declines. By examining the historical record, we know that, during recessions, these four factors—employment, income, output, and sales—tend to decline together. (Location 828)
recession, fifteen months after it began. In contrast to (Location 859)
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Technically, these fluctuations in growth relative to trend are known as growth cycles. (Location 868)
the economy actually shrinks or grows at a below-zero rate. (Location 869)
A. A trough in the business cycle occurs when the economy stops contracting and starts expanding (point B). Points A and B are the cyclical high and low points, respectively, of the line that represents economic activity. (Location 886)
The growth rate cycle tracks upswings and downswings in the rate of growth of the economy, and is a very useful measurement when used in conjunction with the business cycle. (Location 906)
Certain indicators, like production or sales, turn in step with the economy. Because these indicators always coincide with the economy, we can use them to track the business cycle's progress, and call them “coincident” indicators. (Location 912)
The growth rate cycle, however, is important. There is a one-to-one correspondence between growth rate cycles and stock price cycles. Predicting turns in the growth rate cycle, while not useful for anticipating recessions and recoveries, is important to equity investors in evaluating the movement of the market. (Location 956)
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For example, in Chapter 4 we discussed how the late-1990s bubble economy was encouraged by a misunderstanding of the link between economic growth and inflation, which fueled misguided exuberance about a “new paradigm” of endless noninflationary growth. (Location 1136)
In fact, as our Leading Home Price Index predicted, home prices kept rising through the recession and recovery. (Location 1143)
For businesses, the nuances revealed by the many-cycles view are also critical. For example, in a two-speed economy, an accurate forecast of a U.S. business cycle upswing may be accompanied by weakness in global manufacturing, as was the case following the 1997 Asian Crisis. (Location 1148)
For businesses and individuals alike, the many-cycles view reduces the apparent discord in the deluge of data, clarifying the complexities of the economy and providing clear clues to the correct course of action. (Location 1154)
The phenomenon known as “stagflation” demonstrated that cycles in economic growth and inflation could sometimes have distinctly different timing—with rising inflation coexisting with falling growth. (Location 1174)
Employment, like inflation, is related to cycles in economic growth, but it too can diverge from economic growth at turning points. Generally speaking, employment tends to peak just before the overall economy does and trough slightly afterward. (Location 1203)
Therefore, in order to determine the current state of the employment cycle and forecast its course, a separate set of indicators is needed. Moore first considered what drove the employment cycle. (Location 1207)
Inflation, employment, and economic growth actually represent three separate “aspects” of the economy. (Location 1220)
As free trade grew in the late twentieth century, it became clear that a sound knowledge of the cycles in imports and exports was important for accurate forecasting. (Location 1223)
Key to an ongoing research program is the focus on the discovery of new relationships. While the creation of the original leading index was a good first step, it was not sufficient to capture the full complexity of the U.S. economy. It turned out that the economy was marching to the beat of many different drummers. (Location 1233)
With an upturn approaching, the longer leading indicators would begin to turn up in anticipation. The shorter leading indicators, however, would not yet foresee the turning point, so they would continue on a downward track. (Location 1237)
The long leading index can accurately signal a turn in the economy up to one year in advance. Such a long lead time gives us earlier warning. The short leading index begins to turn six months or so before a downturn. (Location 1249)
The Weekly Leading Index (WLI) anticipates cycles in overall economic activity—recessions and recoveries—by summarizing the best leading indicators of growth at a given time. (Location 1530)
Similarly, monthly glances at the FIG will allow you to assess how hot the economy is running. (Location 1535)
You should check the WLI and the FIG regularly—at least once a month. Missing a week won't mean the end of the world, but we strongly recommend that you never let extended periods of time pass without knowing what the indicators are saying. (Location 1537)
Major declines in Weekly Leading Index growth below zero lead the onset of recessions, just as the rebound back above zero from those declines anticipate recoveries. (Location 1565)
Thus, it is the level of the Weekly Leading Index that indicates cyclical downswings before recessions and upswings before recoveries. (Location 1567)
All the while, Michael had kept an eye on the climbing Weekly Leading Index, which continued to predict a growing economy. (Location 1690)
This meant putting off expanding the business, postponing capital outlays that he had earlier planned; he actually reduced payouts to his investors. (Location 1697)
When growth is about to turn down, stocks get riskier and bonds become safer, especially if inflationary pressures are also falling. The converse is also true. Prior to an upturn in the economy, stocks become less (Location 1757)