NEW YORK (MainStreet) – In uncertain financial times (or always, as seems to be the case in the volatile and interconnected new world economy), all manner of hucksters come out of the woodwork with ideas on how to get people back on stable footing, for a small fee of course. They may come in the form of mortgage consultants, stock pickers, or celebrities hawking the best prepaid credit card ever, but they will come.
The reason so many people are able to make a living reading economic conditions and leveraging that knowledge to the benefit of the paying customer’s wallet centers on one fundamental truth: it’s hard to predict the future.
For the most successful analysts, economic forecasting relies on numbers. But numbers lie, so environmental and demographic trends must be factored in as well. But people behave based on what information makes its way to their eyes and ears, so tracking the media and monitoring social networks has a place at the table as well.
The moral of the story? There is no such thing as perfect information, and there is no such thing as the right formula. A model that worked for the past 10 years probably may not work for the next 10, so what’s most important is taking a wide-field view of economic trends and using a mixture of indicators to make the best decisions possible. And, of course, monitoring the outcome of those decisions.
Dennis Stearns, the president of Stearns Financial Services Group and the recipient of numerous awards for his skill with forecasting and financial planning, recommends a model that focuses on the “trillion-dollar super-trends” that shape the fundamentals of the world economy, mixed with official government data and some “messy” indicators that focus on consumer behavior. He likens the process to a lesson he learned from a submarine commander friend.
“He had considerable sonar resources to see the terrain around him and ahead of him,” Stearns says, “which for us is equivalent to leading economic indicators and jobs reports. But sometimes it’s the nuance in the background noise that informed him if an enemy sub was nearby. Some of the more offbeat and non-traditional indicators speak to that nuance, and all the good forecasters I’ve known have taken all that and used it to get a better view of what’s around their submarine.”
Here, then, are some of the key indicators that for Stearns and other experts are the most helpful in giving you a feel for where the economy is going.