In The News: Retail Sales/Leading Economic Indicators

This blog is more directed at my ECON 2301/Macroeconomics Students.


Just today on Yahoo News, we saw a report about Retail Sales being down.  This then led to a drop in various Stock Indices as well.

The S&P 500 index retreated from near a seven-month high Tuesday after weaker-than-expected January U.S. retail sales data curbed investors' appetite for risky assets. U.S. retail sales rose less than expected in January as consumers cut back on car purchases and shopped less online. The disappointing data added to concerns stemming from Moody's downgrade Monday of ratings on six euro-zone countries.

"The state of the consumer is still pretty mild. We have had some good economic news but still pretty mild trends all around," said Sean Incremona, an economist at 4CAST in New York. The Dow Jones industrial average (DJI) was down 28.01 points, or 0.22 percent, at 12,846.03. The Standard &Poor's 500 Index (SPX) was down 3.97 points, or 0.29 percent, at 1,347.80. The Nasdaq Composite Index (IXIC) was down 10.23 points, or 0.35 percent, at 2,921.16. On Monday, the S&P 500 rose near a seven-month high, up more than 25 percent from a low in early October.

The benchmark index is hitting strong resistance in the 1,355-1,360 area, a possible trigger for a pullback. Pressuring the financial sector, Citigroup downgraded Bank of America Corp (BAC.N) to "neutral" from "buy," saying earnings headwinds would continue at the company even as capital concerns subside. Bank of America shares were down 1.1 percent at $8.16.

Students in Macroeconomics who've read the chapter on business cycles should recognize these stock indices and  retail sales as leading economic indicators.  These are different kinds of time series economic data whose behavior precludes the business cycle by about 6 months.  Granted these are just 2 or 3 of the whole index which includes:

     Average workweek (manufacturing)
     Initial unemployment claims (new unemployment benefits claims)
     New orders for consumer goods (durable goods)
     Vendor performance (retail sales)
     Plant and equipment orders (durable goods)
     Building permits (new housing construction)
     Change in unfilled durable orders
     Sensitive material prices (as in gold, silver and crude oil)
     Stock prices (S&P 500, DJIA, Nasdaq and other stock indices)
     Real M2
     Index of consumer expectations (a/k/a Consumer Confidence Levels)

Question for comments:  What does this news article suggest about the economy for the next few months?  In other words, what are these leading indicators predicting?

As always I welcome your comments and thoughtful discussion.

Success to you all!

Prof. Hank Lewis