Investing

3 offbeat economic indicators Wall Street experts watch, and what they can mean

Anna-Louise Jackson@aljax7
Twenty/20

Wondering how the U.S. economy is faring lately? Experts are too.

For clues on where the economy is headed, traders closely track the yield curve, as well as economic reports measuring things like GDP, hiring, consumer spending, homebuilding activity, consumer confidence, manufacturing activity, and inflation. Many of those reports that earlier this year suggested U.S. growth was slowing (and possibly headed for another recession) now point to continued growth ahead.

Because economic indicators from the government can conflict, traders will often supplement with other sources of data, some of them more surprising.

Nicholas Colas, cofounder of DataTrek Research, digs into 10 to 20 different data points on a daily basis, looking for anything that might give subscribers to his popular daily newsletter a different perspective on the U.S. economy. "This is a huge area of growth on Wall Street," he says.

Here are three of his favorite offbeat indicators:

1. Key phrases consumers search online

When Americans have questions, they turn to Google for answers — and these queries can be revealing about how Americans are feeling. While Colas regularly examines Google Trends for a variety of search terms, including "coupon," "unemployment," and "TV," he says one search term is the most reliable: "Dow Jones."

"That's the one that catches my attention the most," Colas says. "It's a proxy for general economic growth and security."

Even Americans who don't invest in stocks check in on the Dow Jones index — which is made up of 30 stocks and is meant to be representative of the U.S. economy — especially when there's market turbulence. During August, a wild month for the stock market, "Dow Jones" searches peaked.

Increased interest in the markets
Google searches for "Dow Jones" started increasing in early 2018 and hit a new peak in August 2019 during a wild month for the stock market.
Social chart title
Note: Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular.
kiersten schmidt/grow Google

This increase shows that people use the stock market's performance as a gauge for how secure their job might be or whether their home will appreciate, Colas says: "It's a very finely tuned measure of how people are looking at the stock market and how it's going to affect their lives."

2. 'The deep internals of the job report'

The first Friday of each month is a big day on Wall Street, because that's when the Bureau of Labor Statistics releases its closely watched monthly employment report. While this report covers a swath of employment data, there are two headline numbers: the number of people hired in the prior month and the unemployment rate.

But Colas doesn't stop there. "I like to look at the deep internals of the job report, and particularly the unemployment rate for people with only a high school education," he says. In addition, he looks at unemployment rates at the state level, and right now he's focused on the Midwest — Michigan, Ohio, and Indiana in particular.

Since the Great Recession ended in 2009, there's been a lag in hiring for people working in the manufacturing industry, while people who don't have a college education have only recently been clocking full-time hours. And as a result, these groups are most vulnerable to job cuts when there's a slowdown.

"They will feel the first signs of a recession," Colas says.

I like to look at the deep internals of the job report.
Nicholas Colas
Cofounder, DataTrek Research

3. Vacation and other big-ticket spending

One of the more offbeat economic indicators that investors often cite is whether Americans are buying more RVs. That's because these vehicles aren't typically a necessity and they're expensive, a combination that suggests buyers have a lot of confidence about their financial futures.

Similarly, Colas regularly digs into a variety of data — including surveys and Google Trends — to see whether Americans are planning to take vacations, because "getaways are typically axed at the first sign of financial trouble."

Of the three, however, he said this one's less helpful. "Americans just don't take vacations," Colas says. "It's a cliche, but the cliche is true."

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