The economy, as seen by Goldman’s rock star

by Michael Tarsala

There are hundreds of economic indicators. Who watches them all?

You only need to watch a little more than a handful to know what’s going on, according to Goldman’s Jim O’Neill, one of the most respected economists in the world — and still an industry rock star.

Here’s what O’Neill had to say back in March about the economic indicators he watches, and why:

There are some indicators which are simply more powerful in their reliability than others, as well as having predictability in shores beyond their own. In my view, the Korean trade data, U.S. job claims, the U.S. ISM report and its new orders and inventory component, the Euro area business and consumer confidence surveys, especially the German IFO, are the key numbers I look for each month.

With that in mind, we put together the following snapshot of the latest readings from O’Neils favorite indicators: 

Korean exports: They are down sharply.

Exports fell 8.8% year-on-year in July, much lower than expectations of a 3.9% decline, reversing a 1.1% gain in June. It was the worst exports reading in about three years. Imports fell 5.5%, resulting in a trade surplus of $2.7 billion.

U.S. jobless claims: The data is not great, but improving.

First-time unemployment applications rose only slightly last week, up 8,000 to a seasonally adjusted 365,000. The better measure of the long-term trend, however is the four-weeks claims average. It fell 2,750 to 365,000, the lowest level since late March. Claims remain close to a four-year low.

U.S. ISM Report: Manufacturing activity is contracting at a slow pace.

The Institute for Supply Management’s survey had a July reading of 49.8% up very slightly from 49.7% in June. Readings below 50% mark a contraction in U.S. manufacturing activity. June marked the first reading below 50% since July 2009. The contraction continued for a second month, although the decline is still slow.

ISM new orders: It’s declining slowly.

This metric is slightly more forward looking than the overall ISM number, and slightly more negative. It registered 48%, down 0.2% from June, showing a contraction at a slow rate in new manufacturing orders for the second-straight month.

ISM Inventories: It, too, is declining slowly.

This metric is also meant to be forward looking, reflecting the planning activity of manufacturers. July was a better number than June, at 49%, up from 43% in July. Still, it contracted at a slow rate for a fourth-straight month.

Euro zone economic sentiment: It’s declining, and at a 3-year low.

The EC’s economic sentiment indicator for the euro area fell to 87.9 in June from 89.9 in July. It marked the fourth-straight monthly decline in the index. The last time that happened was December 2011.

Euro zone consumer confidence: It’s down sharply.

This index is supposed to encompass 99% of the region’s consumer spending. It fell to minus 21.6 in July, down from minus 19.8 in June, its worst reading in three years. It’s significantly worse than the long-term average reading of about minus-12.

Germany IFO business confidence: It’s down again in July.

Business expectations fell to 95.6, down for a fourth month to its worst reading in about two years. The overall business climate reading fell to 103.3, from 105.2 in June, lower for a third-straight month.

Photo by: Stephen Jaffe