It’s almost impossible not to analyze the global economy in terms of GDP growth, trade deficits, unemployment data, inflation figures and interest rate changes.
These indicators, after all, have been around for decades, and most of the world leans on them to figure out what the future holds.
Yet the numbers actually mean little in a world that’s changing as rapidly as our world is, says Zachary Karabell, head of global strategies at Envestnet in Chicago and author of “The Leading Indicators: A Short History of the Numbers that Rule Our World,” because the conventional indicators that guide our thought processes were, constructed at a different time — a time when the world was much smaller and more “static,” and numbers/indicators that hadn’t existed until then were needed to explain the challenges of such cataclysmic events as the Great Depression and World War II.
They may have had some relevance up until the 1950s, but today, in a world of global markets and “unfettered capital,” a world of unbridled commerce where products are made and sold in so many different places, and where technology changes from day-to-day, Karabell — who spoke at Envestnet’s 2014 Advisor Summit in Chicago on Wednesday — believes that the use of traditional indicators to predict future outcomes is totally counterproductive, particularly at the individual level. And events that may have occurred once or twice in the past, such as greater job growth resulting from higher GDP, should not be counted upon as indicators for the future.
It’s difficult, of course, not to rely on the familiar and a world without traditional indicators can seem scary, particularly for financial advisors, whose clients have not only become accustomed to basing their decisions on the standard indicators but also rely on their advisors to explain the cause and effect of these indicators.