DEFINITION of 'General Motors (GM) Indicator'

The General Motors (G.M.) indicator is based on the theory that the performance of U.S. automaker General Motors (GM) is a pre-cursor to the performance of the U.S. economy and stock market. The G.M. Indicator relies on the assumption that when people are confident and making money one of the first things they would do is buy a new car. In addition, one idea behind the G.M. indicator is when its stock price moves - up or down - it can be a signal of economic stability or volatility, or even a sign of an impending recession for the United States. 

There is still some talk behind this strategy as there is a correlation between auto sales and the overall economic standing of individuals. But this theory had more weight in the 1970s-80s when G.M. was by far the largest car maker in North America. Since then G.M.'s importance to the U.S. economy has declined due to greater competition.

During the financial crisis of 2007/2008, G.M. saw sales decline due to a decrease in demand for their "less" fuel efficient vehicles, and a decrease in available funds for financing due to credit restrictions. Their stock price dropped over 70 percent compared with a general market decline of around 30 percent. Although a correlation exists, the overall market and economy relies less on the performance of one automaker than it did in the 1970s.

According to a New York Times article from July 2018, G.M. reported their earnings before the market opened on July 24, and G.M. shares ended the day off 4.6 percent. As of August 2, 2018, stock prices for GM remain lower than average and the Times quoted that G.M. reported that it now expected adjusted earnings of about $6 per share for 2018. 

BREAKING DOWN 'General Motors (GM) Indicator'

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