Macroeconomic Analysis

Leading indicators — such as PMI surveys, yield curve shape, and new orders — tend to change before the economy begins to follow a trend. Lagging indicators like unemployment rates and consumer debt confirm trends that have already begun. Coincident indicators such as industrial production and retail sales move broadly in step with the economy, providing real-time confirmation. Effective macroeconomic analysis typically triangulates across all three categories.

Markets price in expectations, not current reality. If consensus expects weak data but the release is better than feared, markets will rise. Conversely, strong data can trigger falls if it implies central banks will delay rate cuts that markets had already priced. This "bad news is good news" dynamic is particularly common during monetary easing cycles, where weak data accelerates expected policy loosening.

When short-term government bond yields exceed long-term yields — a "yield curve inversion" — it typically signals that markets expect economic conditions to deteriorate, prompting future rate cuts. Historically, persistent inversion of the US 2Y-10Y spread has preceded every US recession since the 1970s, with a typical lead time of 12–24 months. The signal is probabilistic, not deterministic, and works in concert with other leading indicators.

The Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index both measure inflation but differ in methodology. PCE uses a broader expenditure basket, includes rural areas, and weights categories based on what consumers actually spend — making it more responsive to substitution. The Federal Reserve targets PCE for its mandate, while CPI is more widely cited publicly. Core PCE (excluding food and energy) is the Fed's primary inflation gauge.