All varieties of business activity, by level; local, county, city, state, and national, and by type; building, manufacturing, buying, selling, borrowing, and lending, contribute to the country’s business cycle. However, the common thread which binds all these activities is MONEY. All of the following indicators will have a direct impact on how money affects the business cycle: availability, cost to borrow, debt level, income level, and inflation. Even supply and demand, the pillars of capitalism, are influenced by money.
My research on business cycles has pointed to a very simply fact….follow the money. Therefore, many of the leading economic indicators I personally monitor are centered on money, reasonably forward predictive, and thus provide a better “pulse” on what is happening during the business cycle phases:
USSLIND: Leading Index US
NFCI: Chicago Fed National Financial Conditions Index
AWOTMAN: Average Weekly Overtime Hours of Production and Nonsupervisory Employees: Manufacturing
FEDFUNDS: Effective Fed Funds Rate
JHGDPBRINDX: GDP-Based Recession Indicator Index
MPCREDIT: Primary Credit Rate
UEMP15T26: Unemployed 15 to 26 Weeks
USD1MTD156N: Monthly London Interbank Offered Rate(LIBOR)_US Dollar
DRALACBS: Delinquency Rate – All Loans, All Commercial Banks
DALLCIACBEP: Delinquencies All Loan & Leases_Commercial & Industrial_All Commercial Banks
All these economic indicators can be found on the St. Louis Federal Reserve website. Some of these indicators are copyrighted and all have suggested cite notations. Details for each indicator with notes, graphs, share, data (all for free download), and cite suggestions are on the website.
Just like the stock market, economic indicators are constantly changing and fluctuating up and down as business conditions vary. Periods of even consistent downward trending, depending on the time-frame of the evaluation period, may not necessarily signify a change in the business cycle trend. Business cycle expansions have a long-term trend. Business cycle contractions have a short-term trend. Evaluating business cycle activity requires looking at all the leading economic indicators together, not just one or two.
KEY POINTS – Business cycle activity occurs gradually. There are NO single and immediate points where directions change. The U.S. business cycle is comprised of 50 state business cycles which are not necessarily correlated. Economic indicators are monitored by the Federal Reserve and many non-profit and for-profit organizations. Due primarily to extreme stock market volatility which began in the 1990s, individual investors should use business cycle activity to gauge their risk appetite for stock market investing.