Economic indicators: Hot or not?

FORTUNE -- If you look closely, you can find economic indicators everywhere. Over the years, economists have examined everything from hemlines to men's underwear sales to taxi availability to try and forecast the economy's future.

But the recent turmoil has changed the way some economists look at their favorite indicators. Data that was seen as prescient a few years ago is all but considered a failure today. Some indicators that were once wallflowers are now in the spotlight.

Since uncertainty seems to reign these days, perhaps it's not surprising that other major indicators, such as consumer confidence and stock market prices, have no clear consensus.

After taking an unscientific poll of economists and other soothsayers, Fortune has devised an official (for now, anyway) "Hot or Not" list of economic indicators, along with a couple that will always remain classics. Hello, ISM Manufacturing Index, and so long housing data!

Hot:

The Institute of Supply Management's manufacturing index is everybody's current darling. "It's a very good series, one of the best out there," says Bernard Baumohl, chief global economist for The Economic Outlook Group. The survey quizzes manufacturers on new orders, production, employment, and inventories, among other topics. Andrew Busch, global currency and public policy strategist for BMO Capital Markets, says the index has "a very nice record for predicting growth and employment." The ISM numbers are compiled monthly, making them relatively timely. Released on the first business day of the next month, they don't have time to get stale.

And what's the ISM telling us now? The May index fell to 59.7% from 60.4% in April, but that was still considered good news. Many economists were expecting a reading of 59%, and any number over 50% shows that more firms are expanding than contracting.

Credit spreads are also very much in vogue. Even those who don't think financial market indicators tell us much about the overall economy keep a close eye on them, if only because they're worried that the next blowup will come from the financial sector. Busch looks at the spread -- or difference -- between three-month LIBOR and overnight index swaps. On June 1, it stood at about 31.325 basis points, about even with last week's level and up from about 10 basis points before the Greek credit crisis. That number, Busch says, shows how much players in the capital markets are willing to trust each other. "If the spread starts to climb, you've got continued risk that counterparties are fearful of transacting with each other," he says.

Employment data, say many economists, is in some ways the most important. But employment numbers are subject to maddening revisions, making "any nonfarm payroll data of any single month totally ridiculous," says Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation. Economists say the revisions are the worst right around inflection points -- right when accurate data could potentially be most useful. The solution is to try to find a trend based on the past six months of data.

April's data showed 290,000 jobs created, and analysts expect May's numbers to come in at about 500,000, building on an improving trend.

Anything released weekly. For all the respect accorded measures such as gross domestic product and indexes of leading economic indicators, economists complain that by the time they're released, they don't contain much that's new. "The markets move so instantaneously that you can't wait for the GDP or the monthly jobless numbers to come out," says Busch. "You have to anticipate it."

That's where weekly numbers come in: jobless claims, weekly same-store sales and mortgage applications among them. As with employment data, a single report is of limited use, so economists typically look at 4- to 8-week moving averages of those 'weekly' numbers.

Not Hot:

Raw Commodity Prices. One of the series that failed miserably in the last cycle was raw industrial commodities prices, says Robert J. Barbera, managing director and chief economist at ITG. At one time, the prices of commodities actually reflected demand for that particular good. More recently, says Barbera, "it became stylish in a great many pension funds not to own oil companies but to own oil." The demand among investors buoyed commodities prices even as demand from those who actually needed the products was fading. "In the first half of 2008 many economists were saying, 'This can't be a recession, commodities prices are still strong,'" Barbera says. "In fact we were six months into a recession."

Two Journal of Commerce commodities indexes fell sharply in May, leading some remaining believers in this indicator to see bearish times ahead.

Housing data. Once burned, twice shy. In 2007, housing was "the quintessential indicator of where we would be going," says Keith Hembre, chief economist and investment strategist at FAF Advisors, which advises the First American family of funds. Then housing indicators such as sales levels, building levels, and permits all continued to climb without the job and wage gains that were supposed to propel them. Strong housing indicators didn't mean a strong economy; they pointed to a bubble. (In April, sales of previously-owned U.S. homes rose to a five-month high) Now when economists talk about housing numbers, they're more likely to be looking at weekly mortgage applications.

Classics:

GDP is "the mother of all economic indicators in the U.S." says Baumohl, for the simple reason that it pretty much encompasses everything else. But by the time it's released, a lot of its revelations are no longer new, greatly diminishing its predictive value. Still, the GDP is so revered, says Lakshman Achuthan, managing director at the Economic Cycle Research Institute, that it allows "someone who sees a little bit of GDP growth inside a recession to take a policy position that is 100% wrong" -- such as raising interest rates. First quarter GDP rose at an annualized rate of 3%, compared with 5.6% in the last quarter of 2009.

The yield curve is "the mac daddy of economic indicators" says Ritholtz, who says he was astonished when, in 2007, an inverted yield curve wasn't widely taken as a sign that the U.S. was headed for a recession. Hembre says that instead, many thought rates on long-term Treasurys were being kept artificially low because of purchases by the Chinese central bank. "The yield curve is a no-brainer," Ritholtz says. "Ignore it at your own risk." Now, he says, the yield curve is steep, which is consistent with the fact that the financial sector has had a good run.