Financial Planning, Budgeting, and Forecasting: Financial Intelligence Collection (7 Books)

CHAPTER TEN

Real Earnings

The Powerhouse of the Economy

We have established several important principles that allow us to separate the wheat from the chaff in forecasting consumer spending, which, as we saw in part II, is the front end of the business cycle:

1. Soft inputs, such as the consumer confidence indices and ad hoc observations regarding consumer psychology, have not proven helpful in forecasting uptrends and downtrends in consumer spending. Putting aside personal hunches and emotions in predicting the next turning point, we must stick with the numbers that define consumers’ actual incomes, or spending power. These indicators consist primarily of wages (hourly earnings) and salaries and deserve our first and greatest attention when we ...