Q&A WITH MARK SPRAGUE
Mark Sprague is a noted and respected expert on the real estate industry and the Austin market, in particular. He is also the Director of Business Development for Mission Mortgage and we are fortunate to have access to his expertise and opinions. To help our blog readers understand what is happening in the economy and the housing market, Mark will be periodically featured on our blog answering questions that we’ve heard during his presentations. Here is some fantastic information about economic indicators and what they mean.
Every week there are a variety of economic indicators released to help gauge the health and direction of the market. With so many numbers and so much information, it is sometimes difficult to know what to watch and why. The media has a habit of reporting the figures without much explanation of the bigger picture, which would help their readers to understand the numbers they read.
Question: With so many economic indicators, what should we watch and what do they mean?
Answer: Generally, economic indicators fall into three categories – Leading Indicators, Coincident Indicators, and Lagging Indicators. Today, let’s take a look at Leading Indicators.
Leading Indicators indicate which way the economy is headed. Some primary examples include:
Weekly Claims for Unemployment–the number of workers filing for unemployment benefits after losing a job.
Market sensitivity – High
Release time: 8:30 AM ET every Thursday, covers the week ending the previous Saturday.
Source: Dept. of Labor, Employment and training division
Why is it important – the initial unemployment claims report has shown an ability to predict when the economy approaches a turning point. Experts pay close attention to this indicator due to the accuracy and timeliness. It accurately reflects what is presently going on in the economy. For example; If a large number of people are losing their jobs every week and applying for unemployment compensation, this will eventually dampen consumer spirits, slow their spending and cause businesses to pare back investments.
Consumer Confidence Index – Examines consumer expectations about the economy (how they feel about jobs, the economy and spending), as reflected by a survey of 5,000 U.S. households conducted by the Conference Board.
Market sensitivity: Medium, but can be high at turning points in the economy.
Release time: 10 AM ET, announced the last Tuesday of the month being surveyed.
Source: The conference board
Why is it important?: Happy consumers are good for business. They are more likely to shop, travel, go out to restaurants (which by the way Austin is #1 in per capita spending for restaurants and dining out!) invest buy homes and keep the economy on a roll. The opposite obviously is lousy for business, and if the number of malcontents in large enough it can derail an economy. When the economy is slow, a bell weather to consumers confidence in govts and administrations’ handling of economic affairs.
The Federal Open Market Committee Statement (or anything said by the Fed. Reserve Chairman)
Market sensitivity: Very High
Release time: 2:15 PM ER on the day the FOMC concludes its meeting. A schedule of its meetings can be found at www.federalreserve.gov/fomc/.
Frequency: The FOMC formally gathers eight times a year and issues a statement on the results of it deliberations at he conclusion of every meeting. (Only in the most extraordinary circumstances might the FOMC choose to act between scheduled meetings.)
Source: Federal Reserve Board
Why is it important? The brevity of this report belies the enormous impact it has around the world! This is a report that barely fills a single page, contains virtually no numbers and comes out just eight times a year. Its if there is tremendous cost/weight for each word on the page. The FOMC statement is studied word by word by economists, investors, and the business press. Words or phrases that showed up in previous releases but are omitted in the current statement are studied to capture all the possible nuances on how the Fed currently view the economy. Is inflation a bigger risk than recession? What are the serious threats facing the economy? The answers to these questions might provide hints on whether the central bank is biased towards lowering or raising rates to the reserve banks. (whether there is a need to slow down or boost the economy).
How do you read the FOMC statement:
– First a short sentence that tells the outcome of the FOMC vote on interest rates.
– This brief section describes the economy’s current state based on the latest economic indicators.
– This is the part that reviews and highlights the Fed’s assessment of current inflation and growth. That trends do they display, and what underlying forces propel both.
– Here’s where economists and investors get a sense of what the FED will be inclined to do when it meets next. This paragraph is more forward looking and offers some insight into what the FOMC will monitor most closely between now and the next meeting.
– This is the list of FOMC members who participated in the meeting that morning and how they voted. Generally (particularly with interest rates) the reference is to have unanimity among the members in line with the Fed Chairman. There are occasions when certain participants disagree so strongly with the Fed chairman’s recommendation thy will formally register their disapproval.
Housing starts – explained in a previous post, which you can access here.