We've been looking at various surveys and market valuation-based statistics that have a track record of being able to generally get the direction of the U.S. economy right. Now we're going to take a look at a few indicators that get the direction of the global economy right. Toward the top of our list is copper prices.
Investors have skin in the game. That means that when we are wrong and make the wrong allocations according to our error, we get punished. This does not logically imply that investors are always right. Bubbles seem to be a real thing. But it does mean that investors might have a more direct set of incentives when it comes to the economic outlook than, for example, pundits or people who are asked about their confidence levels in general opinion surveys.
We wrote previously about how business surveys, such as the Purchasing Manager’s Index Survey (PMI), are good at showing not just the mood of supply chain managers but also what kinds of business conditions are actually occurring. Their sentiment responds to and creates real business output. Kind of like a mood ring, but one that actually works.
First, let me introduce the most important economic statistic that you've (probably) never heard of, Gross Output. It was invented by economist Mark Skousen and was adopted by the federal government, which now reports it quarterly. Unlike GDP, Gross Output includes the stages of production which occur before the transactions which are counted in GDP. It's a fuller picture, more like a cat-scan than an X-ray.