Economic Indicators to Watch and Why

Here’s a primer on the most common and vital economic indicators. Use it to advise clients on the health of the economy and the strength of their investments.
Gross Domestic Product (GDP). A way to gauge an economy’s health, GDP represents the market value of all goods and services produced in a nation during a specific period. The Federal Reserve uses such information to adjust monetary policy, which includes raising and lowering interest rates ( ).

Money Supply (M2). This figure represents the total of all the money a country has in circulation. The Fed uses it to assess economic conditions and to help alter monetary policy; economists use it to predict recessions and recoveries and expected changes in stock prices ( ).

Consumer Price Index (CPI). Essentially a measure of individuals’ cost-of-living changes, the CPI measures fluctuations in prices paid for goods and services by urban households for a specified month, providing the best gauge of the inflation rate related to purchasing those goods and services. Changes in inflation can spur the Fed to change monetary policy ( ).

Producer Price Index (PPI). It measures the changes in selling prices of goods and services U.S. producers receive over a period of time. The PPI captures price movements at the wholesale level at three stages of production: crude, intermediate and finished goods. It’s the first inflation measure available each month ( ).

Consumer Confidence Survey. This leading indicator of consumer spending gauges public confidence about the health of the U.S. economy. It’s based on a random sampling of 5,000 people asked how they feel about business conditions, the labor market, consumer spending, economic growth and their employment and financial expectations six months into the future ( ).

Current Employment Statistics (CES). These data on national employment, unemployment and wages and earnings across all nonagriculture industries are the earliest indicators of economic trends released each month. Employment rate data show the well-being of the economy and labor force. Wage changes point to earnings trends and related labor costs. Economists focus on monthly change in total nonfarm payrolls and where jobs were gained or lost. Payroll data show how tight the labor market is: Tight markets can translate into wage inflation ( ).

Retail Trade Sales and Food Services Sales. These data track monthly U.S. sales, detail changes from previous periods and identify where sales rose and/or fell. The numbers measure personal consumption across retail industries (except for autos) and track growth or deceleration of consumer spending. Analysts use the information to track spending trends and forecast future spending ( ).

Housing Starts. The data show the number of single-family and multiple-unit buildings under construction for the month. They show how many homes were issued building permits, how many housing construction projects were initiated and how many home construction projects were completed ( ).

Manufacturing and Trade Inventories and Sales. These are the combined value of trade sales and shipments by manufacturers in a specified month, as well as the combined values of inventories and business sales. Inventory rates give clues about the growth or contraction of the economy ( ).

S&P’s 500-Stock Index. Standard & Poor’s market-value-weighted index of 500 publicly owned stocks is the benchmark of overall performance of U.S. equity markets. It is a measure of the nation’s stock of capital, as well as a gauge of future business and consumer confidence levels. Companies are chosen based on market size, liquidity and industry group representation, and component companies are periodically replaced ( ).

Source: CFA Institute, .


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