The Secrets of Economic Indicators: 
Hidden Clues to Future Economic Trends 
and Investment Opporunities

Bernard Baumohl

Bernard Baumohl’s “The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities” starts off with a riff on how investors got sold out by their “expert” advisors and even the stock-issuing companies themselves during the recent crash. He contends investors are in the need for better guidance. The solution, he says, is an individual investor do-it-yourself approach to fundamental macroeconomic analysis based on the reported data that underlies both the domestic and international economy.

Make no mistake, this is one of the most useful and fundamentally sound readings of how economies really work you will ever see – much more revealing and educational than a raft of academic books purporting to teach us how the theoretical economy is supposed to function. This book magnifies the real workings of an economy (daily, weekly, monthly)  - the inputs that produce the outputs - and how the data generated from those workings is reported, analyzed, and used.

Baumohl lists 4 weekly, 43 monthly, and 9 quarterly releases of data in short outline form along with what they are, when they’re reported, and how they’re computed, along with their expected effect on the stock market, interest rates, and the dollar.

His goal, he states, is to answer the question of which indicators pack the greatest wallop in the financial markets and which ones are known for doing the best job predicting where the economy is going, thus influencing investments. He assigns a relevance rating to each of the indicators.

It’s easy to get overwhelmed quickly and Baumohl is right when he laments that “There is too much economic information out there, and not all of it is useful.”

He should have added “not all that accurate” either.

As you leaf your way through the compilations, you come to realize that the “numbers” that move the markets are frequently incomplete. The queried respondents upon whose businesses and operations are being used to create data are notoriously negligent in meeting reporting deadlines which brings up the question of whether we ever get a full reading of what’s being reported. Thus the need for “restating” next time around. But by “the next time,” those numbers are irreverent and relegated to history. Question: So, was that big market move last month based on bad info, and if so, will it correct itself when the old data is corrected? Not likely, because a new set of questionable data just got reported and is now at center stage. Deja vu all over again.

For all the questions it raises, this is a good attempt at trying to get a grip on the maze of financial accounting we’re still trying to clean up, but it points out more holes than it fills.

One thing Baumohl doesn’t address which would be a good subject for a follow-on book is that indicators don’t have the same influence consistently through time. Each seems to have a life all its own. From the body counts ( Vietnam ) of the late 1960s, to the oil price increases of the mid-1970s, to the prime rate increases of the late 1970s, right on through the monthly deficit numbers of today, one influential indicator periodically rises to become the focal point of the press and the Wall Street pundits. Relative importance comes and goes with the seasons, and it would have been good to see a 40-year chart clearly delineating how dominant indicators of the time influenced direction of the various markets.

Another issue not confronted is the role played by hedonic influences on various indicators. How should we adjust for increased computer RAM or safety features of automobiles or effectiveness of medical treatment?

A third question concerns whether the market’s reaction operates in a vacuum. Is the day the report comes out merely one more in a series of “jolts” or does it become the tipping point that truly reverses a trend which was waiting for an ignition spark?

A final observation sums up the underlying but unspoken concern about the whole system of governmental collected and reported figures. The world’s most important investor (Alan Greenspan) obviously relies on these figures to make financial and monetary decisions. It is disconcerting to read how many of these indicators are less than what one would expect them to be. Whether Greenspan can make the correct decisions based on sometimes questionable statistics is a question that perhaps will never be answered.

In the mean time, we can all learn a lot about the “numbers” that have an increasingly important impact on our daily lives, to say nothing of our investments.

Read it and consider your options.