How is the economy doing? The market knows

by Columns Staff | December 1, 2011

The next time you hear the federal government announce that the gross domestic product has dropped, say, 3 percent, don’t believe it. Instead, look to the stock market.

When it comes to big-picture economic announcements, the market is more likely to be “spot on” than the Bureau of Labor Statistics, according to Thomas Gilbert, assistant professor in the Foster School of Business. Gilbert’s research was published in the July issue of the Journal of Financial Economics.

“The market is more accurate because it aggregates the information of thousands of investors,” he says. Gilbert based his results on examining three major economic categories—nonfarm payroll, gross domestic product, and industrial production—over a 25-year period.