On My Mind: Economic Indicators

One of my friends in the investment industry said that his clients are now calling their 401K plans 201K plans because their accounts have been cut in half. While the economy is off, it won't always be this way. Even though we know economic growth will pick up again, the real question is when. Of course no one can answer that question definitively, but there are ways for you to make a guess at when business will get better.

Back to my friend's joke about 401K plans. This can be taken as a positive sign. Why? Typically, when investor and consumer confidence have reached their nadir you can look for the economy to start picking up again. This is because confidence indexes are reactionary measures, measuring an individual's reaction to past performance of the economy not the actual economy.

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Another important statistic for finishers to watch is capacity utilization, which is calculated by the Federal Reserve (www.federalreserve.gov/releases/G17/). This number measures the percent capacity at which plants in a given industry are operating. Depending on what type of parts you finish, you can see whether the trend in capacity utilization for the markets that affect your company is up or down. If it's up, you can look for more work, since the more capacity a plant is using the more parts that are being made and the more parts that need to be finished. While the capacity utilization numbers for both the metalworking and fabricating industries have been declining recently, the numbers have leveled off, which might be an indication that things could get better soon.

An additional way to guesstimate when the economy will return is the stock market. While the stock market does not have any direct tie to economic performance, it can provide insight into when the economy will bounce back and even what sectors of the economy will bounce back first. How can the stock market help you? Usually the stock market begins to go up before the economy because investors are "betting" on a company's future earnings not its present ones.

There are numerous other measures that can be used to see economic trends. But these simple methods can help you decide the appropriate time to buy a new piece of equipment or when to hire more people. Keeping up with economic conditions may help you stay ahead of your competition too.