7.2.1. Important Leading Indicators
Housing starts. Housing starts are the number of new construction projects that have begun in the last month.
During a recession, new construction slows considerably. When a family believes that they can invest in a new house or a business believes it can invest in a new building, this is an indication that economic confidence has improved, and it may be a signal that the recession is ending.
Once building permits have been granted and new projects begin, builders buy materials and hire new workers, which lead to increased manufacturing and employment. Thus, an increase in housing starts is a good indication that a contraction phase may be ending.
Conversely, a slow in housing starts can indicate the beginning of an economic slowdown and possibly the onset of a contractionary period. When faced with a reduction in housing starts, the Federal Reserve may lower interest rates in an effort to make money less expensive to businesses and potential homeowners, thereby stalling a possible contraction.
Remember: An increase in housing starts means an expanding economy.
Purchasing Managers Index (PMI). The Purchasing Managers Index is a monthly report released by the Institute for Supply Management. Purchasing managers across the country are asked whether factors in their industry are “better, same, or worse.” The numbers in each group are tallied with same responses being split equally between the better and worse categor