Our Insights

September 2019 – 3 in 3

September 2019 – 3 in 3

This month, Jason Weaver discusses economic indicators, the Federal Reserve toolbox, GDP and the consumer.

Economic Indicators

There are leading indicators, which are statistics that precede economic events. They predict the next phase of the business cycle. The stock market, housing and interest rates would be examples of those. Then there are lagging indicators, which are factors that change after economic events. Typically, this could be unemployment, GDP and corporate earnings.

When you compare the Conference Board Leading Economic Index with Recessions, you will see a drop off in leading indicators before a recession. This was seen before the 1973-’74 recession, 1990-’91 recession and the infamous 2008-’09 recession. We are not seeing a decline in indicators today, so we do not see a recession on the horizon.

Federal Reserve Toolbox

The Fed. is tasked with increasing or decreasing the size of the nation’s money supply. They have three main tools they use to do that.

  1. Reserve Requirement: deposits that banks refrain from loaning to borrowers and keep in reserves at the bank.
  2. Discount Rate: Interest rate charged by 12 Federal Reserve Banks to member banks who borrow funds from The Fed. They recently lowered the discount rate by 0.25% to 1.75 – 2%.
  3. Open Market Operations (most popular): Controls the supply of money by buying and selling U.S. Treasury Securities.

GDP & The Consumer

When you look at the Economic Clock, 6:00 is the bottom of the economy and 12:00 is the peak. As you are coming out of 6:00, you can see things like rising commodity prices, declining inventories and profits accelerating. There can also be rising inflation and climbing interest rates. Therefore, we currently believe we are right between 11:00 and 12:00.

We have seen the rise of interest rates. Now the Fed. is using that tool box to keep the economic expansion going. If they hadn’t used that tool box, we would probably be on the back side of the economy and more in to contraction. There are 9 innings in a baseball game, but it can go extra innings. The economy is like baseball and the Fed is allowing us to go in to extra innings by using their tool box.



Listen to our most recent conference call:

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Watch our previous video:

August 2019 – 3 in 3 Market Update