Sarah Kelly's Key Ideas from Ahead of the Curve
by Joseph H. Ellis

• Recession is a poor indicator of economic health.
• Growth slowing significantly causes almost as much damage as an official recession, but doesn't provoke as much concern because it's not negative.
• The declining rate of economic growth matters more than whether a technical recession occurs.
• People should pay more attention to slowing growth as a warning sign.

Consumer spending drives most economic activity, so indicators tied directly to spending, like personal incomes and interest rates, make the best predictors of overall economic performance.

Consumer spending leads to production and capital investment, so forecasting it well forecasts other indicators.

Employment levels actually lag economic changes rather than predicting them. Hiring drops when the economy declines and rises when it improves again.

Look at consumption instead to predict employment, since spending heads upward first. Consumption rising means employment will follow.

For business forecasting, use economic indicators relevant for your specific products and industry niche, and look at historical performance through business cycles.

Manufacturers can relate consumer spending to their sales categories.

Understand your context instead of overall data.

The Federal Reserve's interest rates influence consumer psychology and inflation, but they don't directly determine consumer spending. Their economic impacts are indirect.

People mistake the Fed's attempts to cool down or stimulate growth via rates as linked to spending, but the relationship is not close.

• Stock markets are ultimately tied to corporate profits and thus consumer spending.
• When consumer spending declines, profits and markets follow.
• Interest rates also affect markets through impacts on spending.
• Understanding consumer spending helps predict market booms and busts.
• Falling spending means falling markets.

History shows to buy stocks when the economy looks bleak but consumer spending shows signs of improvement.

The best time to sell is when consumer spending and growth peak. This contradicts the instinct to buy when times seem good and sell when worried.

Take the counterintuitive approach.