• / Free eNewsletters & Magazine
  • / My Account
Home>Practice Management>Practice Builder>Market Indicators and Optimism--Talking Points for Clients

Related Content

  1. Videos
  2. Articles

Market Indicators and Optimism--Talking Points for Clients

How to reassure clients concerned about the economy.

Helen Modly and Tommie Monez, 04/12/2012

Financial advisors typically have a long-term view and are effective at explaining the advantages of staying the course and sticking to a plan. Still, that doesn't keep clients from calling and asking about the latest headlines from the nightly business report. They're afraid that things really are different this time, and they need to be reassured. Be prepared by keeping up with some basic market indicators.

Most custodians publish frequent market reports with recent results and predictions for the future. Get in the habit of reading these on a regular basis, or find an economist that you respect and get on their email list. Include global economics in your regular reading to get an informed perspective on international events. Jot down a few talking points relative to the questions and concerns that are being expressed by your clients, and remember that one week, month, or quarter alone is not predictive. Focus on trends and not just the latest flurry of numbers. Below I've offered some concise talking points on a handful of the key early indicators.

Current Employment Statistics (CES)
Jobs are on everyone's minds these days. Every month, CES provides data on employment, unemployment, and wages for non-agricultural workers, including non-military government workers. The numbers can provide some early indicators of economic well being. Typically an increase in hiring of temporary workers is the first sign that the job market is improving. Average hours worked per week and average earnings show the progress of the job market. Be forewarned that the unemployment rate tends to flatten out for a time during a recovery when the long-term unemployed become optimistic and begin to resume their job searches.
www.bls.gov/ces

New Residential Building Permits
This is a leading indicator because new residential building permits are needed several months in advance of actual construction. Data is reported monthly; however, improvement in this statistic can occur more than a year before broader economic recovery, and the data is very volatile. It takes many months to establish a trend. Housing starts are also highly sensitive to changes in mortgage interest rates.
www.census.gov/construction/nrc

Stock Market Index--S&P 500
Stock prices indicate business and consumer confidence about economic conditions going forward. Although the Dow Jones Industrial Average gets the most attention in the media, it includes only 30 companies. The S&P 500 is a market value weighted index of 500 public stocks that are chosen based on size, liquidity, and industry group representation, and an upward trend in the index's performance is a better leading indicator of recovery. Changes in the S&P indicate growth or contraction of business investment and consumer spending.
www.standardandpoors.com/indices

Manufacturers' Orders
Increases in orders by manufacturers tend to be predictive of increases in consumer spending, which is a signal that a recovery is beginning. Consumer spending is an important part of the Gross Domestic Product (GDP), which is an aggregate measure of economic output. These figures are reported monthly.
www.census.gov/m3

Gross Domestic Product
This is the broadest measure of the state of the economy. It is the market value of all goods and services produced in a specific time period within the U.S., regardless of the producer's nationality. It is driven more by consumer consumption than business investment or government spending. Data is adjusted to account for changes in year-to-year prices to allow comparison between periods and is published three times quarterly. First an "advance" report is published, followed by a "preliminary" report, and then a "final" report.

A healthy economy usually grows at around 2.5%-3% per year. Growth above this level is considered unsustainable, causing inflation fears. Growth below this range indicates a sluggish economy with increased unemployment and decreased spending. Monetary policy will be adjusted based on GDP to help slow down or rev up the economy.
www.bea.gov

Consumer Price Index (CPI)
The CPI is the most widely used measure of changes in the cost of living (inflation) for urban consumers. The index is a sampling of goods and services across 200 categories such as food and beverages (including restaurant meals and alcohol), housing costs, clothing, transportation (including air fare and auto insurance), education (including tuition and computer software), medical care, utilities, recreation (including TV cable, sports equipment, and pet care). It does not include income, payroll taxes, or investments, but does include taxes paid on those items.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.