ShmoopTube

00:00

Finance Allah shmoop what are lagging and leading economic indicators

00:10

Okay people Here's the economy kind of roller coaster ups

00:14

and downs and well but it generally goes up overtime

00:18

anyway More people more demand for toothpicks Ah bed sheets

00:22

hair growth formula You know that one really worked more

00:24

buyers of a one bedroom with a view of another

00:26

one bedroom with a view of Well yeah Wall Street

00:29

people and economists Yeah Those guys are always trying to

00:32

figure out where we are in these roller coaster cycle

00:35

ups and downs Are we here Are we here Are

00:38

we here Yeah very Carmen Sandiego So a leading indicator

00:42

is basically the canary in the mine shaft And if

00:44

you don't know the term Pita stopped this But it

00:47

used to be that miners would literally bring Canaris with

00:51

them into mine shafts Because canaries if they live to

00:55

tell the tale are extremely sensitive to gas Ah different

00:59

gas when there would be any kind of harmful leak

01:02

like from gas lanterns or from diesel engines or from

01:06

fissures in the earth while the canary would die quickly

01:09

or at least stop singing And then the miners would

01:11

skied addle out of there So the canary was the

01:14

leading indicator of a deadly gas leak and miners would

01:17

follow it awful Investors are always anxious to figure out

01:20

what leading indicators air saying about where the economy is

01:23

going Investors kind of live two quarters in the future

01:26

And if they believe we'll have a meaningful slowdown in

01:29

the economy while they'll usually begin selling well ahead of

01:32

them that is The economy or belief in economic growth

01:35

is a leading indicator often of where the broader stock

01:38

market is heading for the stock market generally anticipates the

01:41

economy well One famous canary no longer really in use

01:45

anymore are help wanted lines in the newspaper And yes

01:49

once upon a time those things were on paper way

01:52

before the founders of Glass Door indeed and the others

01:54

were even well invented are born so help wanted lines

01:58

were a leading indicator of the economy If they were

02:01

shrinking the economy was likely to be softening as demand

02:04

for incremental new hires was dissipating And I went the

02:07

other way too So today we look more often it

02:09

things like bond yields albeit with skepticism because the Fed

02:13

can raise and lower bond rates for a variety of

02:15

reasons defending the dollar internationally like they'd raise rates to

02:19

do that or with political back pressure well they might

02:21

lower them to give the stock market a chance TTO

02:23

walked upwards ahead of an election Lower rates mean lower

02:26

bond yields thus making things like equity Dividends are much

02:29

more attractive means of raising cash to you know pay

02:33

the rent Well new housing starts for another big leading

02:35

indicator volatile space But if the smart people of the

02:38

world are green lighting loans for builders to build new

02:41

homes well then a whole lot of people believe that

02:44

the demand will be there for those homes when they're

02:46

finished a year or two or three later Okay so

02:49

those air leading indicators what are lagging ones And why

02:52

would we even care about a lagging indicator like a

02:55

lagging indicator of your death Is well worms eating your

02:58

body And you really just not caring what lagging indicators

03:02

really service a truth telling mechanism to see if we

03:04

got our leading indicators right That is a lagging indicator

03:08

might tell us that we've just finished a big economic

03:11

boom and a really five quarters into a sort of

03:13

soft recession as we see declines in profits from gate

03:17

fees at Disneyland and Disneyworld And we might see unemployment

03:21

rates going up at an active clip And we might

03:23

see interest rates following with the governor hoping the stimulate

03:27

economic activity again Well all of these indicators however only

03:30

exist in a weird kind of vacuum because so many

03:33

cities and even states really have their own financial ecosystem

03:37

Economically speaking right Well the planet called Silicon Valley over

03:41

the last couple of decades has generally grown like a

03:43

bamboo chute on hot sweaty days with only blips of

03:46

economic cyclicality Other areas like Detroit and Central Baltimore can't

03:51

seem to grow no matter how much stimulus the feds

03:54

apply The key takeaway as with any economic indicator is

03:57

that real investor type Wall Street people really don't care

04:00

all that much about what theater economy is doing when

04:02

they put money to work for their clients And after

04:05

all while those economists were PhDs need at least something

04:08

to do with their time So you know why not 00:04:10.769 --> [endTime] opine on lagging and leading economic indicators Oh

Full Transcript