Charts from Ahead of the Curve
Ahead of the Curve presents a new forecasting method and working model for monitoring the economic indicator cause-and-effect relationships that have consistently driven economic cycles over the past 50 years and remain key drivers today. Despite some structural changes in the economy over the past 50 years, these continue to be essential in predicting economic advances and slowdowns and the bull and bear markets that, with surprising consistency, accompany them. Because charts in Ahead of the Curve end at the end of December 2004, the following charts from the book are presented on an updated basis to provide readers with the most recent data in the context of these charts.
The following points will be useful in using these charts:
- Data in most charts is presented in terms of year-over-year rate of change.
- Vertical yellow bars in most charts denote bear markets (declines in the S&P 500 Index of 12% or more). IMPORTANT: The leading edge (left side) of the vertical yellow bars are thus stock market peaks, and the trailing edge (right side) are stock market troughs.
- Black bars at the bottoms of most charts denote recession, an economic measurement described in Ahead of the Curve as “a generally lagging and useless measure of economic harm.”
- For printing purposes, select “landscape” for best results.
Economic growth, recessions, and the stock market: A REMARKABLE CONSISTENCY
Real consumer spending (PCE) and industrial production: The volatile effects of the inventory cycle
Swings in industrial production drive changes in real capital spending
Swings in real consumer spending (PCE) drive changes in real capital spending
Bear markets begin when growth in real consumer spending (PCE) peaks and begins to slow
Consumer sentiment surveys: Coincident, not leading, indicators
How inflation affects growth in real average hourly earnings
Real hourly earnings: Best leading indicator of real consumer spending (PCE) downturns
Growth in employment and borrowing “leverages up” real hourly earnings
Real hourly earnings: A useful leading indicator of stock market direction
Employment’s lagging relationship to consumer spending (PCE)
The unemployment rate’s lagging relationship to real consumer spending (PCE)
The unemployment trap: Unemployment and the bear market
Combined year-over-year increases in employment and real wage growth drive real consumer spending (PCE)
The discount or fed funds rate as a leading indicator of real consumer spending (PCE)
Rising discount/fed funds rates: A harbinger of bear markets
Long-term interest-rate changes and the stock market
Increases in total domestic debt drive the prime rate
Increases in total domestic debt drive the 10-year Treasury yield