I’ve received a rather interesting book to review this week; it’s called The Wall Street Journal Guide to the 50 Economic Indicators That Really Matter – From Big Macs to “Zombie Banks,” the Indicators Smart Investors Watch to Beat the Market. It’s a long title for what is actually a rather short and compact book.
In the book Flash Foresight, Daniel Burrus taught us how to distinguish between hard trends and soft trends so that we can make better predictions. And in The Wall Street Journal Guide to the 50 Economic Indicators That Really Matter, authors Simon Constable (@SimonConstable) and Robert E. Wright (@RobertEWright) teach us how to watch indicators and make smarter market investments.
50 Economic Indicators Follows Unlikely, Entertaining and Unusual Indicators
My business book reading addiction rarely takes me to the hallowed halls of Wall Street. But this book piqued my interest when my eyes fell on the back cover blurb: “An entertaining must-have guide to the indicators most investors aren’t following – but should be.” It was the “should be” part of that sentence that got me to read more. That’s when I learned that there was such a thing as a “Vixen Index” – an index that tracks the number of attractive waitresses in your home town. Really? This counts as an indicator upon which to base an investment decision? OK, I have to read more–and you should too.
50 Indicators reads almost like Super Freakonomics. And if you liked the Freakonomics books, I think you’ll like this one too. Early in the book, the authors state that no one they interviewed or talked to was aware of every one of the 50 indicators. In other words, even the folks who live, breathe and measure the economy on a daily basis were entertained and surprised!
Rather than go into a boring dissertation on common indicators such as Consumer Price Index or unemployment rates, 50 Economic Indicators has chosen 50 off-the-beaten-path indicators based on the following criteria: timeliness (how enduring is the information?), accuracy (can you rely on the information?), exoticness (uniqueness or unusualness) and correlation to the real economy (does it work?).
Consumption Indicators – 70 percent of the U.S. economy is grounded in consumption, making this an indicator you can’t ignore. Here are just a few consumption indicators mentioned in the book:
- Track the UNDERemployment rate. This number is released the first Friday of the month. When this number goes up, start buying stocks in pharmaceuticals, food and alcohol.
Business Investment Indicators – this sector comprises between 15 and 20 percent of GDP. Even though consumers cut back in the short run, ultimately they have to purchase these items over the long run.
- The Book-to-Bill ratio tracks the semiconductor industry. Since microchips go into nearly every device we use, the ratio of semiconductors booked (ordered) compared to those delivered (billed) becomes valuable.
Multiple Components Indicators – This is where you’ll find the “fun and interesting” indicators.
- Fertility rates are a leading indicator. As countries get richer, fertility rates are reflected in investments in education, cars and houses. As baby boomers age, you should buy health care stocks and as small baby bulges enter college, buy education stocks.
Inflation, Fear and Uncertainty Indicators — These indicators are also called the three horsemen of the financial apocalypse because they presage major shifts in GDP.
- The Vixen (Hot Waitress Index) is an invented index created by Hugo Lindgren who noticed that as the economy tanked restaurants were able to hire better and better looking staff. This is by no means official, but it goes to prove the point that with a little research and financial tracking, you can create your own index.
50 Economic Indicators Is a Super Handbook for Any Investor
I thoroughly enjoyed 50 Economic Indicators. This isn’t a book so much as a handbook that any investor regardless of his or her level of expertise will be able to put to use.
Since many of the indicators mentioned in the book are frequently mentioned in the news, you might consider having this book close at hand – maybe even on a Kindle – because you’ll want to refer to it whenever some of these stats are reported so that you can decide how to invest your money.
Even if you’re not an avid investor or trader, but are interested in economics, you’ll find this book interesting and entertaining.