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4 Economic Stats That Matter -- To You
 

Are you lost in a sea of conflicting, hard-to-interpret data? You can gauge the effect on your day-to-day life and your future finances by tracking these indicators.

By Gina Roberts-Grey

MSN Money

The numbers are dizzying and mostly depressing.

Every day the information floodgates open, releasing waves of economic numbers and stats we're told affect everything from the price of a loaf of bread to the number of for-sale signs in our neighborhoods.

The steady stream of information, experts say, is missing one key component: "Consumers aren't being told which economic indicators they need to pay the most attention to, and why," says Alan Schlottmann, the executive director of the Theodore Roosevelt Institute, a research and consulting think tank, and a professor of economics at the University of Nevada, Las Vegas.

Until now. Here are four indicators that not only affect your everyday life but are also useful in gauging the security of your job, your negotiating power, the car to buy and even when to sell your house.

Blue collar? Here's your indicator

The indicator to watch: the Purchasing Managers Index, or PMI.

When to look for it: the first business day of each month.

What it means: The PMI is a composite of five subindicators -- production levels, new orders from customers, supplier deliveries, inventories and employment levels -- that are extracted through surveys produced by the Institute of Supply Management. The surveys are sent to more than 400 purchasing managers around the country.

The PMI represents only manufacturing, not services, even though services "account for a very large portion of employment and output in the U.S.," says Frank D. Tinari, a past president of the National Association of Forensic Economics.

Tinari adds that manufacturing is considered a leading indicator and a good predictor of changes in gross domestic product (GDP) and even possibly the economy as a whole. An index value above 50 signals expansion in the economy; anything less than 50 signals contraction.

In the past 12 months, the index has ranged from 49.5 in June and July to a low of 32.9 in December. Economists were cautiously optimistic about March's value, 36.3, up 0.5 from February. That slight tick upward, Tinari says, means the economy is still contracting "but at a slower rate than before."

How it affects you: An unexpected, significant dip or a slumping trend is usually followed by a loss of manufacturing jobs in the coming three to six months. Tinari says it also shows up in lower prices on U.S.-made products. Conversely, a rising number, even one that's slowly inching up, can indicate that prices and manufacturing jobs are holding steady or increasing.

What you should do: Sudden changes are warning signs. And Tinari says any three- to six-month trend (up or down) should be watched. "Always keep in mind changes in excess of 5 points suggest shifts in the overall economy."

Ebb and flow is nothing new in the history of the PMI. Here's a look at what it's done during U.S. recessions since World War II:

Recession		Average	High	Low
2007-09		44.4	50.8	32.9
2001		43.4	46.3	40.8
1990-91		48.6	54.9	39.2
1980-82		43.1	58.2	28.4
1973-75		54.1	72.1	30.7
1970		46.2	51.5	39.7
1960		47.1	61.5	42.6
1957		45	53.6	36.8
1949		41.3	57.3	31.3
All-time low		29.4 (May 1980)
All time high		77.5 (July 1950)

Have a house to sell?

The indicator to watch: housing inventory.

When to look for it: monthly. The National Association of Realtors releases its report on existing-home sales for the previous month at 10 a.m. ET on or around the 25th of each month.

What it means: Affecting anyone looking to buy, sell or refinance a home, housing inventory represents the number of months' worth of existing houses there are on the market. The current rate of 9.7 months' worth of inventory means that instead of buying an existing home, many are seeking roommates or bunking with family members. "That leaves a lot of homes without buyers," mortgage broker Todd Huettner says.

Luckily, the number is slowly creeping down; in November 2008, it was 11 months. "When the HI (housing inventory) hits five or six months, the number of homes for sale will not meet demand. Home values will improve, and new home construction will be needed," Huettner says.

How it affects you: The higher the number, Huettner says, the longer it will take to sell your home. "A high number creates a buyer's market because of the excess inventory. And a buyer's market tends to see home values fall, which affects sales prices and refi (refinancing) appraisals." Conversely, the smaller the number, the less time it should take to sell a home. "Normal (housing inventory) is about six months," Huettner says.

What you should do: "If possible, hold off selling or refinancing until the number edges downward," Huettner recommends. But if you are selling when the housing inventory is high, Huettner suggests negotiating a lower commission rate with your real-estate agent to offset the lower asking price the inventory will dictate. "They're more apt to wiggle on their rate when they have several listings," he says.

Would-be sellers and refinancers, take heart. As the number comes down, your home value should go up based on your region's home values. And we're currently trending down, something Huettner calls "a good sign." Here's a snapshot of how the Housing Inventory has been moving:

Period	Supply of homes on market
Average in 2006	6.5 months
Average in 2007	8.9 months
Average in 2008	10.5 months (highest since 1985)
March 2009	9.7 months

Want to dicker over big-ticket items?

The indicator to watch: consumer confidence.

When to look for it: Consumer confidence is measured monthly and reported at 10 a.m. ET on the last Tuesday of the month, reflecting the data for the current month.

What it means: Formally known as the Consumer Confidence Index, consumer confidence is measured by The Conference Board, an independent economic research organization, and based on a survey of 5,000 households.

"Consumer confidence measures the degree of optimism on the state of the economy consumers are expressing via their spending and savings activities," says Vinnie Aggarwal, the chief economist at Frost & Sullivan and the director of the Berkeley Asia Pacific Economic Cooperation Study Center at the University of California, Berkeley. The index indicates consumer attitudes about the current climate and their expectations about the future.

Several factors drive the index up or down. When everyone was spending freely a few years ago, consumer confidence soared, even if the buyers were spending money they didn't have. "People felt secure in their jobs and in their retirement strategies. And their spending reflected such," Aggarwal says.

However, the index's current sharp downhill slide (and current all-time low) represents our mounting fears about losing our homes and jobs. Aggarwal says fear has consumers spending considerably less on dinners out, new appliances and vacations than in years past. "That mix of fear and subsequent reduction in spending conspires to undermine consumer confidence. And creates a gloomy near-term outlook," Aggarwal says.

Stability is key. A number around 75 or 80 indicates we're spending just enough to keep the economy going at a current pace but that it probably won't grow very much.

Changes of less than 5%, Aggarwal says, are usually dismissed as "noise." "As such, retailers, manufacturers and banks usually do not adjust pricing," he adds. A move of 5% or more indicates a change in the economy, prompting businesses to shift pricing.

How it affects you: There are plenty of bargains to be had now because a prolonged low in consumer confidence has retailers lowering prices to attract buyers, Aggarwal says. "Those lower prices and subsequent spending will drive up consumer confidence."

What you should do: When you see a decline of 5% or greater, haggle. Aggarwal says that if you can afford to buy the new appliance or sneakers you've been eyeing, do so -- "just don't pay the sticker price." Most retailers are hungry for sales and will knock as much as 15% off the price if you ask.

Consumer confidence, 2007-09:
Period	Confidence index	Present	Future	Period	Confidence index	Present	Future
March 2009	26.0	21.5	28.9	March 2008	65.9	90.6	49.4
Feb. 2009	25.3	22.3	27.3	February 2008	76.4	104.0	58.0
Jan. 2009	37.4	29.7	42.5	January 2008	87.3	114.3	69.3
Dec. 2008	38.6	30.2	44.2	December 2007	90.6	112.9	75.8
Nov. 2008	44.7	42.3	46.2	November 2007	87.8	115.7	69.1
Oct. 2008	38.8	43.5	35.7	October 2007	95.2	118.0	80.0
Sept. 2008	61.4	61.1	61.5	September 2007	99.5	121.2	85.0
Aug. 2008	58.5	65.0	54.1	August 2007	105.6	130.1	89.2
July 2008	51.9	65.8	42.7	July 2007	111.9	138.3	94.4
June 2008	51.0	65.4	41.4	June 2007	105.3	129.9	88.8
May 2008	58.1	74.2	47.3	May 2007	108.5	136.1	90.1
April 2008	62.8	81.9	50.0	April 2007	106.3	133.5	88.2

Choosing between a Honda and a Hummer?

The indicator to watch: Brent crude futures, or BCF.

When to look for it: daily. The New York Mercantile Exchange provides a daily update.

What it means: Ralph Glass, the vice president of operations at AJM Petroleum Consultants, says Brent crude futures are an international benchmark that set the price for exports of European, African and Middle Eastern oil. "It's the price of a barrel of Brent crude oil, which gives a sense of where energy costs will go based on the source product," he says.

Many factors can play a role in the price of a barrel, including geopolitical issues, weather and natural disasters, trade agreements and wars.

Gasoline and jet fuel are the main products produced from Brent crude, but other refined crude oil products include lubrication oil, paraffin wax, asphalt, industrial fuel oil, heating oil, diesel and kerosene. So you could see those prices fluctuating based on BCF data, too.

How it affects you: Increases in oil prices have preceded every recession since the early 1970s. In the early 1990s recession, oil prices nearly doubled, jumping from $18 a barrel to about $36. Such increases drain some consumer spending (because of higher prices at the pump and for utilities), which can result in an overall slowdown in the economy.

And Glass says because oil is purchased in advance, the price you're paying at the pump isn't for the actual gallon your tank is guzzling. "Depending on the point of the month that a barrel is bought, it could be purchased up to six weeks in advance of when it will be delivered." That means the price you pay today is actually for gas that won't show up at your local station for four to six weeks.

What you should do: It's simple. Keep your eye on the price. To determine just how much you'll feel BCF at the pump in four to six weeks, take the price of a barrel of oil and divide by 25. You'll get very close to the retail price of a gallon of gasoline.

Brent crude futures:
Date	Price per barrel
April 1, 2008	$48.52
Oct. 2008	$72.94
March 2008	$103.28
March 2007	$62.14
March 2004	$33.80

Published April 7, 2009

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