Thursday, May 21, 2015

The Secrets of Economic Indicators by Bernard Baumohl (Book Review #41 of 2015)


The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities, 2nd Edition
I read this book with the perspective of being in an office that does economic forecasting and pays for compilations of several of the indicators listed. I also have taught and used these indicators in undergraduate economics courses. Baumohl's value added is the research he's done on how each indicator is compiled and how it correlates with other indicators. For example: How many firms are surveyed, what questions are on the survey, what is the typical response rate, how does the indicator tend to correlate with future GDP growth (basic rules of thumb), what is the history of the survey, etc.? I've read books like Capital Ideas that give the history of the creation of the Dow, S&P, and other indicators we see on the nightly news, and this book is somewhat similar. If you've never been exposed to reports from the BLS, BEA, etc., this book is a tutorial on what's what.

The major indices are updated daily by Bill McBride at calculatedrisk.com (which I check first thing every morning), and he makes handy charts. But he focuses more heavily on real estate and does not cover dozens of indicators included in this book (some for good reason as some have minimal impact).

 Here's how I recommend reading it: Make a spreadsheet with tabs for leading, coincident, and lagging economic indicators (I made an additional one for international). Add indicators to the sheet where appropriate, follow the links (or search to find the correct ones as my version of the book [2008] has several broken links) and start tracking the numbers as they update over time. This gives you a one-page snapshot of the trends of several indicators as opposed to just one at a time, as you generally get with the news. It's a bit like reading an encyclopedia, but is a reference that should be on the shelf of anyone interested in the economy. 4 stars out of 5.

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