U.S. Economy - Big-Four Indicators

Key Facts

  • four main drivers of the U.S. economy
  • updated monthly

Summary

The economy and the markets are only loosely related but ultimately headed towards a common destination. Therefore economic indicators help investors anticipate the future.

The Big-Four indicators represent the main drivers of the U.S. economy: employment, production, sales, and income. In a healthy economy, we expect all four indicators to continuously rise. While it is comforting to see how these indicators rise, we find limited information in the slope of these indicators.

However, when the economy approaches a recession, the indicators first stall, and then start to decrease. Therefore, declines from a previous all-time high, or off-peak values, are useful leading indicators for a recession.

The Big-Four set of indicators is simple and transparent yet effective, which is probably the reason why it is often quoted. We recommend also looking at the Chicago Fed’s National Activity Index which we especially like because of its broad coverage.

U.S. Bureau of Economic Analysis, Real personal income excluding current transfer receipts [W875RX1]. U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS]. Board of Governors of the Federal Reserve System (US), Industrial Production Index [INDPRO]. U.S. Census Bureau, Advance Retail Sales: Retail and Food Services, Total [RSAFS]. Data retrieved from FRED, Federal Reserve Bank of St. Louis.