Investment economic indicators you should know

Economic indicators are some of the most valuable tools that investors can put into their arsenal. Indicators such as the Consumer Price Index (CPI) and written reports such as the Beige Book are consistent with the release, with a wide range and scope, and are available for free inspection and analysis by all investors.of Policymakers, especially those of the Federal Reserve, use indicators not only to determine the direction of economic development, but also to determine the speed of economic development.of

Although investors should understand economic indicators, it is undeniable that these reports are often boring and the data is raw. In other words, you need to put the information in context before helping to make any decisions about investment and asset allocation. But there is valuable information in these original data releases. Various governments and non-profit organizations that conduct investigations and release reports have done a very good job in collating and presenting tasks that are logically impossible for any investor to complete. Most indicators cover the whole country, and many indicators have detailed industry breakdowns. Both of these indicators are very useful for individual investors.

What are economic indicators?

In the simplest form, an indicator can be viewed as any information that can help investors interpret economic conditions. The U.S. economy is essentially a living thing. At any given moment, there are billions of moving parts—some in action, and others in reaction. This simple fact makes prediction extremely difficult. No matter what resources are used for the task, they must always involve a large number of assumptions. But with the help of a wide range of economic indicators, investors can better understand various economic conditions. There are also indexes of coincident and lagging indicators—the components of each indicator are based on whether they tend to rise during or after the economic expansion.

Used in tandem, used in context

Once investors understand the calculation methods of various indicators and their relative advantages and limitations, they can combine multiple reports to make more thorough decisions. For example, in the field of employment, consider using multiple versions of data. By using working hours data (from the Employment Cost Index) as well as labor reports and non-agricultural employment numbers, investors can have a fairly complete understanding of the state of the labor market.

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In addition, does the increased personal spending justify the increase in retail sales data? Will new factory orders lead to an increase in factory shipments and an increase in durable goods data? Does higher wages appear in higher personal income data? Savvy investors will look up and down the supply chain to find verification of trends before taking action on the results of any indicator.

Personalize your research

Some people may prefer to really understand a few specific indicators and use this expertise to invest based on their analysis. Others may wish to adopt a jack-of-all-trades approach to understand the basics of all indicators, but do not rely on any one. For example, a retired couple living on pensions and long-term Treasury bonds should look for something different from the stock traders who ride the wave of the business cycle. Most investors are in the middle, hoping that stock market returns are stable and close to the long-term historical average (approximately 8% to 10% per year).

It is helpful to understand the expectations for any individual releases and to understand the macroeconomic forecasts in general. The forecast numbers can be found on several public websites, such as Yahoo! Finance or Market Watch. On the day that specific indicators are released, news lines such as the Associated Press and Reuters will issue press releases that will provide data highlighting key sections.

It is helpful to read a report from one of the news lines, which can analyze indicator data through filters of analyst expectations, seasonal data, and year-on-year results. For those who use investment advisors, these people may analyze recently released indicators in an upcoming newsletter or discuss them in an upcoming meeting.

Inflation indicators: stay vigilant

Many investors, especially those who invest primarily in fixed-income securities, are worried about inflation. Current inflation, its intensity, and what it may be in the future are all critical to determining current interest rates and investment strategies. Several indicators focus on inflationary pressures. The most notable in this group are the producer price index (PPI) and the consumer price index (CPI).Many investors will use PPI to try to predict the upcoming CPI.

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There is a proven statistical relationship between the two, because economic theory shows that if commodity producers are forced to pay more in production, then part of the price increase will be passed on to consumers. Each index is derived independently, but is published by the Bureau of Labor Statistics (BLS). Other key inflation indicators include the level and growth rate of the money supply and the cost of employment index (ECI).ofof

Economic output: internal inquiry of stock investors

Gross domestic product (GDP) is probably the most important indicator, especially for stock investors who are concerned about the growth of corporate profits. Since GDP represents the sum of our economic production, the goal of its growth rate is within a certain range. If the numbers start to exceed these ranges, the market’s worries about inflation or recession will intensify. In order to get rid of this fear, many people will follow monthly indicators that can provide some insight into quarterly GDP reports.

For example, the capital goods shipments in the factory order report are used to calculate the manufacturer’s durable equipment orders in the GDP report. Indicators such as retail sales and current account balances are also used to calculate GDP, so their release helps to complete some of the economic problems before the quarterly GDP release.

Other indicators that are not part of the actual calculation of GDP are still valuable because of their predictive power. Indicators such as wholesale inventory, Beige Book, Purchasing Managers Index (PMI), and labor reports all reveal the health of our economy. With the help of all these monthly data, with the slow release of composition data for the entire quarter, GDP estimates will begin to tighten. By the time the actual GDP report is released, people will generally think that this number is very accurate. If the actual result is very different from the estimate, the market will fluctuate, usually very volatile. If this number falls exactly in the middle of the expected range, then the market and investors can collectively pat their backs and let the popular investment trend continue.

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Mark your calendar

Sometimes indicators play a more valuable role because they contain very timely data. For example, the PMI report of the Supply Management Institute is usually released on the first working day of each month.Therefore, it is one of the first aggregate data available for the month that just ended. Although not as detailed as many of the indicators to be followed, the breakdown is usually selected to obtain clues such as future labor report details (from employment survey results) or wholesale inventory (inventory survey).

The relative order in which the indicators are presented does not change from month to month, so investors may wish to mark a few days on their monthly calendar to understand areas of the economy that may change their view of investment or timeframes.In general, asset allocation decisions may fluctuate over time, and it may be wise to make such changes after a monthly review of macro indicators.

Bottom line

There is no agenda or sales promotion when the benchmark economic indicator data arrives.Data just now Yes, It’s hard to find now. By understanding the content and reasons of the main economic indicators, investors can better understand the stock market and the economies they invest in, and they can also be better prepared to re-examine the investment thesis when the time is right. Although there is no “magic indicator” that can determine whether to buy or sell, combining economic indicator data with standard asset and securities analysis can bring smarter portfolio management to professional asset managers and DIY investors.


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