Consumer confidence measures how optimistic people feel about the economy. When people are confident, they spend more money on things like cars, appliances, and vacations. When they're worried, they save money and spend less.
Every month, the University of Michigan surveys thousands of Americans and asks them:
The answers are combined into a single score. A score of 100 is considered "neutral" - anything above that is optimistic, below is pessimistic.
Consumer spending makes up about 70% of the entire U.S. economy. When people feel confident and spend money, businesses grow, hire more workers, and the economy expands. When people are worried and stop spending, businesses struggle, jobs are lost, and the economy can shrink.
If consumer confidence drops suddenly, you might see:
This measures how busy factories are making physical goods like cars, computers, furniture, and machinery. When factories are busy, it means businesses are growing and the economy is strong.
Manufacturing is measured on a scale where:
The Institute for Supply Management (ISM) surveys purchasing managers at factories and asks about:
When factories are busy:
Manufacturing makes up about 12% of the U.S. economy, but it has a huge multiplier effect on other industries.
Services are anything you pay for that isn't a physical product: haircuts, hotel stays, restaurant meals, healthcare, consulting, education, banking, and entertainment. Services make up 70% of the entire U.S. economy!
Like manufacturing, services use a scale where 50 is the dividing line:
This is like a crystal ball for the economy. Instead of telling you what's happening now, it predicts what will happen 6-12 months from now. It combines 10 different forward-looking indicators into one number.
The index combines 10 indicators that tend to change BEFORE the overall economy does:
The Leading Index tends to predict economic changes about 6-12 months in advance. This means:
Historical Track Record: The Leading Index has predicted every recession since 1960 by turning negative 6-12 months before the recession started.
This measures how easy it is to find a job by tracking how many people file for unemployment benefits each week. Fewer claims = stronger job market.
Every week, people who lose their jobs can file for unemployment benefits. The government counts how many new claims were filed:
To make it easier to read, we flip the scale: fewer claims = higher score. So a score of 85 means the job market is strong (few layoffs), while 25 means it's weak (lots of layoffs).
Employment is arguably the MOST important economic indicator because:
Historical Note: Every recession in modern history has been accompanied by a sharp spike in unemployment claims. When claims suddenly jump 50-100%, a recession usually follows within 3-6 months.
This measures how many new homes are being built. When builders are starting lots of new construction, it signals they're confident people will buy homes. Housing is a huge driver of economic activity.
A "housing start" is when construction begins on a new home. The government counts how many new homes are started each month across the entire country.
When builders start constructing new homes, it creates a massive ripple effect throughout the economy:
Housing often changes direction BEFORE the overall economy:
Fun Fact: Housing and related industries (construction, appliances, furniture, etc.) make up about 15-18% of the entire U.S. economy. That's why when housing crashes, the whole economy often follows.