Top 10 economic indicators to watch out for

Every economist, investment advisor and even an ordinary person on the street might have an opinion where the economy is headed. These days even during a cab ride you can engage in deep economic discussion with the cab driver about what is happening in the economy. On top of that, in the technological day and age, we are bombarded with a flood of financial and economic news when we are online to the point where knowledge is automatically delivered to our mobile phones and electronic devices on a daily basis. We are told that the unemployment is high, the economy is struggling, consumer confidence is low, or industrial production is stagnant. Regardless of whether you are a business student or later a business leader, an investor or a consumer looking to buy a house, you simply need to understand the terminology to be able to assess the overall health of the economy. This is where the compendium of economic indicators comes into the picture.

Economic indicators are statistics that provide valuable information about the economy. They are estimated and reported by governments and private institutions and can be used to guide forecasts of future economic activity as well as forecasts of activity and performance in the financial markets and exchange rates.

There are three main types of economic indicators: leading, lagging and coincident indicators. Leading indicators indicate changes before changes actually occur in the economy, meaning they are more forward-thinking predictions and considered the most useful statistics. The Consumer Sentiment Index (useful to identify an upcoming slowdown in the economy) could be an example. Lagging indicators flag a change in the economy after the output has already changed, an example could be the Employment Rate, which tends to fall after economic activity has declined. Coincident indicators measure the economic activity at the time of the publication.

There is no shortage of indicator, but trying to follow them all at once would be an overwhelming and confusing task, therefore we have dedicated this blog to those that we believe to have relatively big influences on the economy and hope the list will encourage you to mark a few days on your calendar for raw releases to be able to make informed decisions on your investments. One side note is that this list purely reflects what we follow and if you Google top ten econ indicators to watch you may find other metrics that may not be our my list, hence we strongly encourage you to do your own research using the knowledge here as a starting point.

GDP (Gross Domestic Product)

GDP, a lagging indicator, is the total value of finished goods and services produced in a country. It is calculated periodically, usually on a quarterly or yearly basis and the market’s responses to GDP shifts may also depend upon how one quarterly GDP measure compares to prior quarters, and how it compares to economists’ expectations for that current quarter. Economists compare positive GDP growth over time periods (year-to-year) to determine how well a country’s economy is doing. Negative GDP growth, on the other hand, may indicate that an economy is in or approaching a recession or economic downturn.

Unemployment

This is often a lagging indicator. The Unemployment Rate is the percentage of the unemployed in the total labor force of a country. But unemployment does not fall in tandem with an increase in growth. Businesses first try to recover from a downturn by keeping the same number of employees who do more work. Only when the recovery takes hold, businesses start adding workers. As a result, unemployment may start decreasing well after an economic recovery begins. The number is calculated by the U.S. Census Bureau and released by the Bureau of Labor Statistics at the beginning of every month.

CPI & PPI

We have a whole blog dedicated to the inflation topic for those who are interested, but there are essentially two inflation measures, CPI (Consumer Price Index) and PPI (Producer Price Index). While the first is the measure of the total value of goods and services consumers have bought over a specified period, the latter is a measure of inflation from the perspective of producers. Both indicators are highly scrutinized by investors and going above the Fed’s target levels could be deemed a threat to the economy, hence may lead the Fed to raise rates to rein in the rising prices. Both data releases are published by the Bureau of Labor Statistics every month.

Retail Sales

Advance Monthly Retail Sales is a measure of sales at retail establishments (does not include spending on services). Data for the previous month is calculated by the Census Bureau, and is usually released just two weeks after the month ends. It also sets the tone for personal consumption expenditures to be released later in the month while giving a peek at a good chunk of gross domestic product. Market importance of this indicator is very high as it nearly moves all markets.

Consumer Confidence Index

Both the Consumer Confidence Index (CCI) and the University of Michigan Consumer Sentiment (MCSI) are of particular interest to investors since they include inflation expectations and outlooks for consumers. The CCI is conducted monthly and contains about 50 questions that track different aspects of consumer behavior whereas MCSI is conducted over the phone and tracks consumer opinions of their own finances and the near- and long-term economy.

Industrial Production

The Industrial Production Index measures the physical volume of output of the entire nation’s manufacturing, electric, mining and gas industries, relative to the base year. It is published in the middle of every month by the Federal Reserve Board – reported on by the Conference Board, a member-driven economic think tank. A larger-than-expected monthly increase or increasing trend is considered inflationary, causing bond prices to drop and yields and interest rates to rise.

Manufacturing Activity

The significance of this data is pretty straightforward. If companies are expecting a robust year of sales, they will order more. These orders are filled by manufacturing companies; whose output is a direct reflection of the health of their clients. The drawback of manufacturing activities will tie directly into the next indicator, the inventory levels, which could be complicated to analyze. Because high inventory levels mean the companies are stockpiling on goods to respond to higher demand, or the demand has decreased drastically, and companies are left sitting on overstocked inventories. That is why the inventory levels should be watched in tandem with manufacturing activity, as the combined signal of declining inventories and rising manufacturing means the economy is performing well.

Housing Market

Investors closely monitor a number of monthly housing-related data releases with the focus primarily on Housing Starts, New Home Sales, Pending Home Sales, and Existing Home Sales, as well as the Weekly Mortgage Application Report, which is released every Wednesday. Since buying a home is a big financial commitment, people willingly buying or building a home says a lot about the strength of the economy as well as consumer confidence. Furthermore, the housing market is particularly sensitive to mortgage rates and an increase or decrease in the Federal Funds Rate will have a direct impact on consumer borrowing costs.

Given the large amount of economic indicators, one tool that can help you remember them all is the economic calendar. A collection, in chronological order, of news and macro economic data that can influence different assets of different financial markets. Another good habit is to consult the Econ indicators, and analyze the data as it is released, this will allow you to be “in time” with the markets. You will see, with the help of these tools staying up to date and deciding where to invest your money will be a breeze.

These are the best places to get data on these indicators to get you started:

The European Commission – On this European Commission webpage you can find a variety of economic indicators for Europe as a whole or any European country specifically for the last few months.

The OECD – The OECD provides you with real-time data on the most important economic indicators within Europe, together with a Monthly Main Economic Indicators (MEI) paper publication, which gives “an overview of recent international economic developments or the OECD countries, the eurozone and a number of non-member economies.”

The IMF – The IMF (International Monetary Fund) publishes twice a year their World Economic Outlook Reports. This report is a very interesting read that covers an “analysis of global economic developments during the near and medium term.”

World Bank Open Data – Excellent resource for getting major economic indicators from nearly every country around the world. This is a must-know source for general indicators (all this information can be found under Databank).

Both Bloomberg Economic Calendar and Trading Economics Econ Calendar can provide a real-time calendar for economic releases for countries allowing you to visualize data in a user-friendly format while filtering based on the data importance and degree of impact on the economy.