Analysis of Bernard Baumohls The Secrets of Economic Indicators - Book Report/Review Example

Review of Bernard Baumohl’s The secrets of economic indicators: Hidden clues to future economic trends and investment opportunities Economic indicators play a huge role in the movement of stock prices. These indicators are a primary tool for big and small investors as they make decisions about buying and selling stock, with some analysts completely obsessing over them. Stocks have responded with wild fluctuations to these indicators, especially in the past year when global confidence in the stock market has been shattered. Still, analysts pay strict attention to these indicators because they are, perhaps, one’s best chance at finding hints about the future direction of markets. In spite of the present catastrophic state of the market, industry analysts maintain an advantage over the rest of us because they are familiar with the indicators and able to use them with greater ease than the small-investor public. Bernard Baumohl seeks to remedy that inequity with his book, The secrets of economic indicators: Hidden clues to future economic trends and investment opportunities. Baumohl offers an analysis of key economic indicators in clear, easy-to-understand language. He addresses US and foreign indicators, offering a sample release, revealing information about the indicators, and showing readers how to make sense of the indicators. His goal is to help readers determine which indicators will most influence them, and how the indicators raise and lower interest rates, bond prices, stock prices, and currency values. In his preface, he queries, “[W]hy do this book at all?... Why is it important for the average person to know?... Why bother with any of this stuff? Why not let the experts sort out the mishmash of economic numbers and tell us what it means?” (p. xvii). After the global market performance of 2008, these questions seem a little less perplexing than they might have been even a couple of years ago. Baumohl is well-qualified to address these topics. As managing director of The Economic Outlook Group, he is charged with forecasting trends and risks in the economy. He served TIME Magazine as an economics reporter for over twenty years, working from New York and Washington to cover the economy at home and abroad. He also worked with the European American Bank and the Council on Foreign Relations. Baumohl gives frequent seminars and lectures at such venerable institutions as New York University, Duke University, and the New York Institute of Finance. He has received the John Hancock Award for Excellence in Financial Journalism (Baumohl, 2007, p. xiii). His first chapter offers a minute-by-minute description of the “lock-up,” where a small and select group report to a Washington DC building to learn whether unemployment has risen or fallen, if wages have gone up, and if people have worked more or less during the last month. They are literally locked together in a room, where a federal official closely supervises them to make sure their cell phones and laptops are off, until they are authorized to communicate what they have learned at 8:30 AM. According to Baumohl, “These statistics might not seem particularly earthshaking to most Americans, but the can and do whip the global stock, bond, and currency markets into a frenzy” (p. 2). In this chapter, he also offers easy-to-understand tables on how economic indicators track the US economy, as well as top international economic indicators (pp. 8, 16). With his audience in mind, in chapter 2 he offers explanations of important vocabulary that give the reader the background necessary to make sense of the rest of the book. He gives definitions for terms such as “annual rates”, “business cycle”, “consensus surveys”, and “seasonal adjustments” (pp. 17-22). He is skilled at making these concepts understandable to the casual reader, relating the concept of annual rates to the speed indicated on one’s automobile speedometer as he cruises down the highway (p. 17). Next, he carefully describes individual economic indicators, focusing on their market sensitivity, Internet availability, frequency of publication, origin, and revisions. Baumohl’s approach is most comprehensive: he breaks down the US economic indicators into categories such as employment, consumer spending and confidence, national output and inventories, housing and construction, the Federal Reserve, foreign trade, and prices, productivity, and wages. He tells how each indicator is computed, including samples of actual releases. He also offers insight on how each indicator influences the market for currency, stocks, and bonds. For example, in his explanation of Weekly Claims for Unemployment Insurance, Baumohl tells readers its purpose (tracking new applications for unemployment insurance benefits), notes that it has “high” market sensitivity, and is published weekly at 8:30 AM every Thursday. He lists both the homepage of the report’s source, which is the Employment and Training Administration of the Department of Labor, as well as the Website where the weekly news is released. He then explains the importance of the indicator, noting “The main appeal of the jobless report is its timeliness…[and] that it is based on actual reports from state agencies around the country. As a result, analysts view this statistic as a good coincident indicator” (p. 40). It is really quite amazing that Baumohl can so quickly and easily explain the details of such a report and express its significance in language a high-school student could easily understand. In a well-deserved nod to the global market economy of this century, he also devotes a large section of the book to international economic indicators. To explain why the book contains this analysis, Baumohl offers this: One reason is that most of the growth in the world economy is taking place within the emerging countries, not the large industrial nations. Secondly, the performance of US corporate profits, stocks and bonds, and the dollar is affected by foreign developments more than ever before…. Moreover, it just makes good business sense to be aware of new opportunities that become available in markets outside the U.S. (p. 325). Again, Baumohl includes informative tables to bolster reader understanding, including one that ranks stock market performance by country from 2002 to 2006, noting the best and worst performers (the US is one of the worst in 2005, and never ranked among the best! A table revised to include 2008 markets would be interesting in the next revision) (p. 326). Rather than taking on all the economic indicators of all the world’s nations, Baumohl focuses on Europe, Asia, and Latin America. The author chose these economies because they are the largest in the world (after the US), offer ease of trading on their markets, and have important trading relations with the US (p. 16). He describes differences in the format and presentation of the indicators that might confuse readers (p. 327). In the last two chapters of the book, Baumohl lists useful Websites that deal with the indicators. He includes a lengthy list of Internet resources for US indicators, and a somewhat shorter list for international indicators. Baumohl’s book offers a great number of strengths. First of all, his qualifications to address these topics are outstanding. His wide-ranging background in domestic and foreign economics lends credibility to his work, which he backs up with impeccable research and wise use of sources. Also, his style of writing is complementary to the subject – it explains and engages readers without getting in the way of the content. He addresses complex economic matters with a casual but authoritative tone. For example, in analyzing new filings for unemployment insurance benefits, he offers, “Whether the economy is growing or not, it’s a fact of life that people lose jobs every day. Companies close money-losing factories, get bought out by competitors, and in some instances just go belly-up” (p. 40). About two dozen words in that small excerpt are just one syllable – but the author does not jeopardize his goals or meaning with his simple, brief prose. It is most refreshing to read an economics book with such clear language. Another of Baumohl’s strengths is his smart formatting of the book. He engages readers instantly in the first chapter about the sensitive nature of the release of the indicators, making readers realize that these indicators must have great power to be handled so delicately. His section on economic language is neither too long nor too short, leaving readers with exactly the appropriate amount of background knowledge required to make sense of his explanations of the indicators. The indicators themselves are explained using a standardized, informative structure that is simple and easy to use. Perhaps the greatest strength of Baumohl’s book is its relevance to today’s economic crises. With world economies in almost uniform disarray, average investors are seeking answers. It has become apparent that the course of the economy is not to be solely trusted to corporate and world leaders – individuals must take responsibility for knowing how markets perform, and how, perhaps, to salvage whatever may be left of their investments in stocks, bonds, and currency. Ultimately, Baumohl’s book will serve as a useful reference to average readers as well as veteran economists. The author has achieved his goal of creating a comprehensive, simple to use guide to the complex world of economic indicators. It will be especially applicable as the world economies sort out the dizzying problems and solutions to the current global market crisis. Reference Baumohl, B. (2007). The secrets of economic indicators: Hidden clues to future economic trends and investment opportunities. 2nd edition. Upper Saddle River, NJ: Wharton School Publishing. Read More