Consumer spending dominates the economy. Because it is such a large share of GDP, it drives corporate profits — and corporate profits, as we saw, drive employment. The stock market is a predictive indicator, moving up and down with consumer spending.
Consumer spending forecasts, then, can be used to predict the stock market, although there are lots of other factors that affect the stock market. Net-net: monitoring consumer spending is the best way to determine where the economy is going.
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Ahead of the Curve will arm you with the knowledge you need to deflect useless theories and reject hype. Economic analysis can be a do-it-yourself activity. Instead of tracking absolute increases and declines, the methods in this book look at changes in growth to make economic forecasts. The tools are based entirely on examining historical data for recurring patterns.
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The economic cycle is driven by cause and effect. Personal income drives consumer spending. Businesses respond to consumer spending by increasing production which, in turn, requires greater investments in infrastructure/capital spending. Consumer spending, production and capital spending all driv...
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