Everything About Economic Indicators for Global Investors

Oct 05, 2023 By Susan Kelly

Some of the most useful resources for investors are economic indicators. Metrics such as the Consumer Price Index (CPI) and textual reports such as the Beige Book are freely available for all investors to review and analyze and are released regularly.

The Federal Reserve and other policymakers utilize economic indicators to ascertain not only the general direction of the economy but also its rate of progress. Investors would be wise to familiarise themselves with economic indicators, but the reports are typically dull, and the data is raw. That is to say before it can be useful in making decisions about investments and asset allocation, it needs to be put into context.

However, the information contained in those unprocessed data dumps is not useless. It would be impossible for a single investor to gather all of this information, but the different government and nonprofit organizations that conduct the surveys and issue the reports do a great job of doing just that. Most indicators cover the entire country, and many include breakdowns by industry, which can be quite helpful to private investors.

Financial Indicators: What Do They Mean?

Simply put, an economic indicator is any data that an investor can use to gain insight into the state of the economy. There are billions of active and reacting parts in the U.S. economy at any given time, making it behave like a living organism. Because of this undeniable fact, forecasting is notoriously challenging. No matter how much effort is put into them, they will always require a significant number of assumptions.

However, investors can learn more about the state of the economy with the help of various economic indicators. Similarly, there are indices for coincident and lagging indicators, the components of which are determined by whether or not they tend to increase during or after economic growth.

In Frame, Together After learning limits, investors can use many reports together to make better informed decisions. The labour market is only one area where it might pay off to compile information from several sources. In addition to the labour , investors can get a more complete picture of the state of the labour market by using the hours-worked statistics (from the Employment Cost Index).

What's more, do rising retail sales numbers correspond with rising consumer spending? Does an increase in factory orders translate to more durable goods shipped? Is the increase in personal income attributable to the increase in wages? Before acting on the outcomes of any single indicator release, the wise investor will examine up and down the supply chain to validate trends.

The Customization of Your Study

Some investors may find it more useful to focus on a few key indications, master those indicators thoroughly, and then make strategic decisions based on that expertise. Yet others may choose a "jack-of-all-trades" strategy, where they learn the fundamentals of each indicator but don't put too much stock in any one.

For instance, a couple in retirement who rely on pensions and long-term Treasury bonds will have different needs from those of Most investors are looking for average returns on their investments, which they hope will be somewhere between 8% and 10% annually in the stock market.

It is helpful to be aware of both the broad macroeconomic forecasts and the expectations for each specific release. Several public resources, including Yahoo! Finance, and MarketWatch, provide access to forecasting data. Newswires like AP and Reuters will issue press releases on the day of a given indicator's release, presenting the data with critical elements highlighted.

Read a newswire report, which can help you make sense of the indicator data by comparing it to analyst forecasts, seasonal patterns, and previous results. If you work with an investment advisor, they will likely discuss newly published signs in a newsletter or during a conference.

Signs of Inflation: Where to Look

Inflation is a major issue for many investors, especially those focusing on fixed-income instruments. Interest rates and investment strategies are heavily influenced by inflation, both at present and in the future. Inflationary pressure is the subject of several different indicators. In this category, the Producer Price Index (PPI) and the Consumer Price Index (CPI) stand out as the most common and widely used measures (CPI)

Numerous traders will look to the PPI as a guide to the likely direction of the CPI. Economic theory says that if manufacturers of goods are obliged to pay more for production, at least some of the price rises will be passed on to consumers. There is a demonstrated statistical relationship between the two. The BLS publishes both indices, even though they are calculated in isolation (BLS). Money supply growth rates and the Employment Cost Index are two other major determinants of inflation (ECI).

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