Fisher Investments Reviews What Components of GDP Investors Should Watch

Transcript

Ken Fisher:

So investors focus a lot on GDP because it's supposedly the standard measure for the size of our economy. There's a certain amount of truth to that. And then they wonder about what they should fixate on.

And for the most part, most people fixate on the wrong thing. The standard thing, and you'll see this in the media all the time, is to fixate on the consumer. What's going to happen to consumer spending? They somehow seem to think consumer spending is causal. It is not. It never has been. Consumer spending is, I mean, consumers have this feature that is long demonstrated and long been known, but few accept, which is that it is very rigid. In a downturn, it goes down much less than other components of the economy. In an upturn, it basically stays within just a few percent of 70% of GDP.

The big swingers to focus on are if inventories get too high. When inventories get too high, businesses are sort of, if you will, over their skis. So the one is inventory levels. You want to look at how inventory levels are relative to total corporate sales. And if that's been increasing, it's increasingly negative. Businesses usually manage that pretty tightly. If it's decreasing, they're getting to be more and more to where they're going to need to replenish and juice back up the economy.

The other is CapEx - business' expenditures on future planned capacity, which swings wildly and is the main single driver, the biggest single driver, of recession. And when businesses pull the plug on that, often because of financing, because financing impacts business' ability to carry inventories as well as a business ability to finance expansion projects, those two are that which are the big drivers that drive recession. You can read a lot about these two online. You can track their levels online easily, you can get the information on them and a wide host of financial websites. And those are the two that the average investor who's worried about the impact on the economy and the market should focus on the most. Thank you for listening to me.

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