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Turn Signals

Where to look for indications that the economy will turn around
Magazine Contributor
4 min read

This story appears in the August 2001 issue of Entrepreneur. Subscribe »

It's easy for Denise Iorio to see the difference between yesterday's boom and today's near-bust. Clients who once wanted sizable Web sites to promote their films are now scaling back to just a page or two, says the co-founder and executive producer of Movie Engines, a Los Angeles Web and film development company. "The change from last year is dramatic," says Iorio.

Curious about when the economy will turn around, everybody is closely examining the economic signs. Iorio, for example, takes the pulse of her company's Hollywood colleagues, customers and suppliers to gauge when and how the economy will shift back into high gear or, perhaps, slow further.

But business owners shouldn't rely on hearsay. Entrepreneurs are surrounded by data that reveals the economy's direction. So what indicators should you follow? And what do they mean?

What to Track

Start by trying to get a feel for the overall economy's direction. The most salient measure is the gross domestic product, which represents the total value of goods and services produced in the United States. GDP is calculated quarterly by the federal Bureau of Economic Analysis. Look for changes in the annual rate of growth to discern the economy's direction. In the last quarter of 2000, for instance, U.S. GDP increased at an annual rate of 1 percent. That was down from 2.2 percent in the third quarter and a sign of a slowing economy. (Get the latest GDP estimates at

You can also track industry indicators. Trade associations, government agencies and private research organizations are sources for industry data. For instance, entrepreneurs in home construction follow the Census Bureau's count of privately-owned housing starts.

Checking Consumers

There are many other indicators out there-much more than you can reasonably expect to follow. Which deserve your attention? Those that predict the behavior of consumers, whose purchases drive two-thirds of the economy. On that score, the stock market is getting more attention than ever before, says Edmund A. Mennis, a Palos Verdes, California, economic consultant and author of How the Economy Works (New York Institute of Finance).

"The critical issue is what consumers are going to do," Mennis explains. "And a large part of that depends on the stock market." Stocks, of course, fluctuate widely in the short term, but over a few quarters, directions can be discerned. And you'll want to track more indexes than just the Dow-the Standard & Poor 500, for example, is also important.

Other consumer activity indicators include the Census housing report and the automobile sales figures available from the BEA. These two big industries tend to dominate U.S. consumer activities. Another is the Consumer Confidence Index compiled by the Conference Board, a New York City business organization. In May, consumer confidence rose to 115.5 from 109.9 in April, which is a sign of possible improvement. (Get Consumer Confidence Index news at

Summing Up Signs

No matter which signs you decide to study, never forget that they're all fallible. Measures fluctuate unpredictably over short periods, so you should examine indicators for several months before reaching conclusions about economic trends, says Bernard M. Markstein III, president of Markstein Advisors, a Phoenixville, Pennsylvania, economic consulting firm. "See if there are special circumstances," he adds. "Even a bad winter storm can affect numbers."

While it's not always easy, watching the economy is a worthwhile pursuit. "Everyone else is paying attention," Iorio says. "And they are making choices as to how much they want to spend, how much they want to do and how many chances they want to take."

Austin, Texas, writer Mark Henricks has covered business and technology for leading publications since 1981.

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