Three Indicators To Keep A (Side)eye On Three worrying indicators to keep an eye on — less complicated than the yield curve, but something you can talk about at the water cooler.
NPR logo

Three Indicators To Keep A (Side)eye On

  • Download
  • <iframe src="https://www.npr.org/player/embed/630633315/630635899" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Three Indicators To Keep A (Side)eye On

Three Indicators To Keep A (Side)eye On

  • Download
  • <iframe src="https://www.npr.org/player/embed/630633315/630635899" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

CARDIFF GARCIA, HOST:

Hey, everyone, it's Cardiff and Stacey. And today on THE INDICATOR is a sad day for me...

STACEY VANEK SMITH, HOST:

(Laughter) OK. OK.

GARCIA: ...Because we are pivoting away from the yield curve.

VANEK SMITH: Yes, the yield curve. Perish the thought that we pivot away from Cardiff's beloved yield curve, which is of course this - OK, I don't even - like, this is the problem. I've tried...

GARCIA: Can there be too many shows about the yield curve?

VANEK SMITH: Yes. Yes, there can. Yes, there can. So Cardiff's always talking about the yield curve being this, like, all-knowing indicator that sort of shows where our economy is. And Cardiff is worried about it because it is flattening.

GARCIA: Yes.

VANEK SMITH: And that is bad. But, you know, there are some problems with the yield curve. First of all, trying to explain the yield curve is a nightmare. It's very complicated.

GARCIA: That's true.

VANEK SMITH: Second thing is, like, around the watercooler, if someone's like, hey, like, what do you think the economy's doing, the yield curve is the worst. It is the worst watercooler indicator of all time.

GARCIA: I think it's a great watercooler indicator. The problem is that, like, if the yield curve was Monday and then you show up Tuesday and it's like...

VANEK SMITH: Still explaining it.

GARCIA: ...Still doing the yield curve, it's like, now we've got to move on, you know?

VANEK SMITH: Yes. So I was like, listen, Cardiff; I challenge you to come up with three indicators that are actually understandable by normal humans that could be explained at a watercooler and that point at the same thing that you think the yield curve is pointing at, which is that our economy may be in for some troubled waters.

GARCIA: Challenge accepted.

VANEK SMITH: (Laughter).

GARCIA: So, yeah, we chose three other indicators about the U.S. economy that we are a little worried about and that we think you should know about. And these indicators do not, by the way, mean that we think a recession is on the way...

VANEK SMITH: Although Cardiff has been weirdly stocking up on bottled water and plywood.

GARCIA: ...Or that the economy's going to collapse. We make no predictions here, right? They're just indicators that we think are worth keeping an eye on because they could be better. They make us a little bit queasy.

VANEK SMITH: I'm Stacey Vanek Smith.

GARCIA: And I'm Cardiff Garcia. Today on the show, three indicators to watch...

VANEK SMITH: That are not the yield curve.

GARCIA: ...That are not the yield curve.

VANEK SMITH: That you can understand, you can tell people at the watercooler, all those things.

GARCIA: Because apparently the greatest indicator of all time just is not enough for everyone.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: Indicator number one that does, yes, show a slightly worrying trend and that is very understandable by normal humans - now, this is the personal savings rate. So right now Americans are only saving about 3.2 percent of their incomes after taxes are taken out.

GARCIA: And that is only about half as much as Americans were saving just three years ago before the saving rate fell sharply. And then for the last couple of years, it's averaged about where it is now, 3.2 percent.

VANEK SMITH: So the low savings rate in some ways makes a lot of sense, right? I mean, unemployment is low, and people do tend to save less money when they're feeling good, when they're confident about where the economy's going, when they are confident they're going to be able to keep their job or maybe even get a better job really soon with a higher salary.

GARCIA: Yeah. Plus, the population is aging, and a lot more people are retiring now. And some of the money that retirees are spending comes from their earlier savings, things like pensions and 401(k)s, rather than from new income. So that might be skewing the personal saving rate a bit lower but for a totally normal and not actually that worrying reason.

VANEK SMITH: But still, we are keeping our eye on the savings rate because in historical terms, a personal savings rate of 3.2 percent is pretty low. And in the past, the savings rate has tended to be low right before the economy starts to slow down. Now, there's no particular reason why this should be the case. We're not exactly sure why this happens. But that is how it has happened. That's how it's been. For example, the savings rate now is just about where it was back in 2005 and 2006, right before the last recession.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

GARCIA: The second indicator has to do with the new round of tariffs that President Trump has threatened to impose on China later this year. Now, a couple of things are different about this upcoming round of tariffs. First, it's just a lot bigger. It will apply to $200 billion worth of goods that the U.S. imports from China.

VANEK SMITH: And second, these new tariffs will target a lot of consumer goods. In other words, the kinds of things you might buy in the store like computers and furniture and vacuum cleaners and refrigerators. According to the Peterson Institute think tank, of that $200 billion, about 23 percent of that is made up of consumer goods. And that is our second indicator - 23 percent.

GARCIA: And these new tariffs on consumer goods will immediately hurt individual Americans because not only will the tariffs raise the prices of the items that Americans buy in stores, but also domestic American companies might be able to raise the prices of the goods that they sell because if you're an American vacuum cleaner maker and you see that Chinese vacuum cleaners have gotten more expensive, you can also raise the prices of the vacuum cleaners that you sell to Americans because there's a little bit less competition.

VANEK SMITH: These new tariffs differ from earlier tariffs on China because the earlier tariffs were targeting commodities like steel and aluminum and parts that American companies would use to make their products. So those tariffs are damaging to American companies, but these effects don't necessarily show up right away for individual consumers.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

VANEK SMITH: So Cardiff's watercooler indicator number three is negative 0.2 percent. Real wages have fallen by 0.2 percent in the past year. And when we say real wages, what we mean is wages adjusted for inflation. So wages have gone up. People's paychecks have gotten bigger. But at the same time, the prices of the things people buy have gone up even more.

GARCIA: Now, a big part of the reason that inflation climbed as much as it did in the past year is that oil and gas prices really shot up. So Americans were paying a lot more to fill up their cars and trucks with gas. And oil prices are notoriously volatile, so there's a good chance that that spike was just temporary and that inflation may not be as bad going forward. And also, this is just one measure of real wage growth. Specifically, it's the one that comes from the Bureau of Labor Statistics. And it covers people who are not executives or managers - in other words, most people.

VANEK SMITH: Real people.

GARCIA: But other measures might be slightly better.

VANEK SMITH: Still, what's clear from the past year is that a lot of Americans got higher wages but didn't really get to enjoy them because the amount of stuff they could buy with those wages stayed roughly the same. In fact, it was slightly less than what they could buy with those wages the year before.

GARCIA: Again, just to be clear, none of these indicators, number one, is as good as the yield curve. But like the yield curve, these indicators do not guarantee or even suggest that we're headed for a catastrophe...

VANEK SMITH: Don't panic.

GARCIA: ...Or a recession or even a slowdown. We just wish that they were a little bit better. And we wanted to share them with you. And also, Stacey wanted other indicators to talk about besides the yield curve for some reason - for some reason.

VANEK SMITH: I know.

GARCIA: I don't know why.

VANEK SMITH: I'm weird like that.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

Copyright © 2018 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.