You will be able to find four published indicators and say what each tells you about the cycle.
After his second downturn, Kumar made himself a promise: next time he would see it coming, or at least see it arriving. He started following economic news closely and soon found he was drowning in it. Every week brought a new survey, a new forecast and a new warning. What he needed was a short list of numbers that are published regularly by someone reliable, each of which tells him something specific about where the cycle is.
Four indicators cover most of what a household needs. This lesson explains where to find each one and how to read it.
Gross domestic product, or GDP, is the total value of goods and services produced in the economy. Its growth rate is the most direct answer to the question "is the economy expanding or shrinking?"
The Ministry of Trade and Industry publishes Singapore's GDP each quarter. The first figure is an advance estimate, released soon after the quarter ends and based on incomplete data. A fuller estimate follows later, and the figures can be revised again after that. An early estimate showing slight growth can become a slight fall once more data arrives, and the reverse happens too.
GDP growth is reported in two ways, and headlines do not always say which. Year-on-year growth compares the quarter with the same quarter a year earlier. Quarter-on-quarter growth compares it with the previous quarter, often expressed as an annualised rate. Lesson 7.1, How a headline is built and what it leaves out, shows how different those two can look.
Read GDP for direction over several quarters. One quarter can be noisy, especially in an economy with large swings in manufacturing output.
For a household, jobs matter more than GDP. The Ministry of Manpower publishes regular labour market reports with three figures worth watching.
The unemployment rate tells you what share of people who want work cannot find it. It tends to rise late in a downturn, because firms try other measures before cutting staff.
Retrenchment numbers show how many workers lost jobs because their employers cut headcount, often broken down by industry. A rise in retrenchments in your own industry is a direct signal for you, even when the national total looks calm.
Job vacancies show how many positions employers are trying to fill. Vacancies often fall before unemployment rises, because firms stop hiring before they start firing. Lesson 5.1, How the job market turns before the headlines do, builds on this.
You learned to read the CPI and MAS core inflation in module 3. In the context of the cycle, inflation tells you how much pressure the economy is under.
Rising core inflation, especially alongside low unemployment and plenty of vacancies, suggests the economy is running hot, which fits late expansion or a peak. Falling inflation alongside rising unemployment suggests the economy is cooling. Imported price swings, such as a jump in oil, can muddy the picture, which is one more reason to watch core as well as headline.
The last indicator comes from the bond market. Governments borrow for different lengths of time, from a few months to several decades, and each length has its own yield. Plot those yields from shortest to longest and you get the yield curve.
Normally, longer loans pay more, so the curve slopes upwards. Now and then short-term yields climb above long-term ones and the curve inverts, as it would if, to use made-up figures, a two-year US government bond yielded 4.5% while a ten-year bond yielded 4.0%.
An inversion usually means markets expect short-term rates to fall in future, often because they expect the economy to weaken and the central bank to cut. In the US, an inverted curve has come before many past recessions. Two cautions apply. The gap between an inversion and a recession has varied widely, from months to a couple of years. And the signal has not always been followed by a recession. Treat it as a reason to check your buffer, not as a forecast with a date on it.
The US curve is the one most watched worldwide, because of the pull of US rates you saw in lesson 2.1, Why Singapore interest rates follow the US Fed. Its data is published by the US Treasury, and financial news sites chart it.
No single indicator tells you where the cycle is, so read them as a set. If GDP is growing strongly, unemployment is falling and inflation is creeping up under a normal yield curve, you are probably in an expansion. Slowing GDP with high inflation, still-low unemployment and an inverted curve looks more like a late-cycle peak. When GDP is falling, retrenchments are climbing and inflation is easing, the economy is most likely contracting.
Kumar's list now has four lines, each with its source. Find the most recent release for each one, and see whether together they agree with the stage you picked after lesson 4.1.
Find the latest release for each of the four indicators and write one line on what each says today.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).