Five critical economic indicators for manufacturers

Manufacturers ought to monitor five key indicators to enhance their companies’ growth strategies, says industry expert, Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International (FMA). He cautions that it is also important to look at wage-driven inflation, the most dangerous type of inflation, and the hardest to deal with.
By Control Engineering Staff September 1, 2008

Manufacturers ought to monitor five key indicators to enhance their companies’ growth strategies, says industry expert, Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association, International (FMA).

  1. Actions of the Federal Reserve. “Review all actions, not just its decisions about what the interest rate should be,” says Kuehl. This includes the Fed’s determination of member banks’ reserve ratios, measurement of real money supply, and decisions made about bank access to capital.

  2. Employment trends. Study the distribution of jobs in terms of growth sectors, shrinking sectors, and demographics. “The unemployment rate tends to be a blunt instrument for measuring the economy, as it fails to provide information about who is getting work, and where,” he says. “The information needed is deeper than that, as 95 percent of the eligible population is employed. What makes up the ineligible and where are they?”

  3. Manufacturing orders for durable goods. These are goods that last longer than three years and are referred to as capital goods. According to Kuehl, such purchases are better indicators of where people and businesses think they will be in the future, because it may take some time to pay for them and they become investments in the future.

  4. Consumer expectations about economic performance and their own actions. “Given that 80 percent of the U.S. economy is fueled by consumer spending, the attitude they have is critical to projecting what happens next,” says Kuehl. “The consumer is notoriously fickle and changeable, and rarely answers questions accurately or honestly, so it becomes important to focus on actions as opposed to words.”

  5. Inflation’s headline rate and core rate. “The headline rate is the one we all confront every time we buy gas or groceries these days, but this isn’t the rate that determines the actions of the Fed or other policy makers,” adds Kuehl. “The price of food and fuel are too volatile to plan around and are thus eliminated when looking long term. The key inflation rate is the core rate, one that eliminates the highly changeable prices to see what the long-term trends might be.”

He cautions that it is also important to look at wage-driven inflation, the most dangerous type of inflation, and the hardest to deal with. Wage-driven inflation is what brings about stagflation if unaddressed.

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