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Economic Indicator
An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles.
Economic indicators include various indices, earnings reports, and economic summaries. Examples: unemployment rate, quits rate, housing starts, Consumer Price Index (a measure for inflation), Consumer Leverage Ratio, industrial production, bankruptcies, Gross Domestic Product, broadband internet penetration, retail sales, stock market prices, money supply changes.
There are three major economic indicators that are widely followed by investors include:
Gross Domestic Product: Gauging the economic health
Gross domestic product, commonly referred to as GDP, is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. GDP measures the overall value of the goods and services produced by the U.S. economy in a specific time period; and is often thought of as the most important economic indicator. GDP is made up of several factors, including public consumption or consumer spending; business investment; federal, state, and local government spending; and net exports (exports less imports).
Consumer Price Index: Prices predict inflation
One of the most important factors for investors to watch is inflation or deflation, and the best-known indicator of inflation or deflation is the Consumer Price Index (CPI). Large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation. Inflation means the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. As inflation rises, every dollar will buy a smaller percentage of a good.
Unemployment Rate: The job market can influence the financial markets
The unemployment rate is the percentage of people in the total workforce who are unemployed and actively seeking jobs, including new entrants into the workforce as well as people who have lost their jobs and are looking for new ones. Each month, the U.S. Department of Labor gathers employment data by surveying individuals and businesses.
