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Exclusive: Mohamed El-Erian's 2 Favorite Metrics

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The Federal government tracks more than 40,000 different economic variables -- everything from GDP to consumer confidence to the price of coal leaving Tidewater, N.Y.

No one can follow them all, or even a meaningful fraction of them. To check the pulse of the global economy and get a feel for where we're heading next, you have to focus on the few variables that really count.

But what are they?

Two weeks ago, I sat with PIMCO CEO Mohamed El-Erian. I asked him to share a few of his favorite metrics for gauging the state of the global economy. Here's what he had to say (transcript follows):

Morgan Housel: With that much information out there, what are, let's say, your top three favorite metrics to judge the health of the global economy?

Mohamed El-Erian: That's a great question. I spent a lot of time on employment indicators. I think we've entered a time where employment indicators are not lagging indicators, as is conventional wisdom, but are leading indicators. Then we have to understand what's going on on the employment front -- to understand what's going to go on on the political front, the policy front. And we should have no doubt that today, markets are much more dependent on policymakers than at any time that I can remember, because we have what I call noncommercial players in markets. When the Fed comes into a market buying mortgages, buying Treasuries, it changes valuations across all markets, and we have to respect that. So the first thing I've spent a lot of time on is the employment number.

Secondly, there are certain economies that I think are absolutely critical in telling you whether the new normal, the global economy of tomorrow, is interacting well with the global economy of yesterday. Think of Australia or Canada. Both of them have old-economy tendencies. In the case of Canada, it's highly dependent on the U.S. In the case of Australia, it has a lot of leverage in the household sector and the housing sector, but they also have new-economy tendencies -- the exposure to China, to commodities. So just observing what's going on in these countries gives you a real insight into how's the battle between established and establishing going on. Is the system accommodating them both, or the friction's really high?


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