On a macroeconomic scale, an economic indicator is data used by analysts to determine the possibilities of investments either at present or in the future, it is also used to assess the status of an economy. Indicators are plenty in numbers but here are some that traders should remember when making a move and why.
Gross Domestic Product
The Gross Domestic Product (GDP) translates to the total amount of goods produced and services provided by a country in a year so with this indicator, traders should do well to keep a close tab on this. The Federal Reserve adjusts monetary policy based on this data and it should be remembered that the economy is in a recession if the GDP declines two or more quarters in a row.
Money supply or M2 depicts the amount of money a certain country possesses in circulation. This data is used by the Federal Reserve to review the current economic financial status, and to help how to implement interest rates and most of all, monetary policy, on whether they should increase or decrease the money supply.
Consumer Price Index
The Consumer Price index (CPI) measures the weighted average of services and goods like, medical care, transportation and food. This statistic measures the inflation relative to goods and services. Measuring the changes to a particular person’s cost of living instead of the items they buy is one way to look at it.
Producer Price Index
The Producer Price Index (PPI) measures the average price change received by domestic producers of goods and services over time. PPI oversees price changes from multiple industries such as agriculture, forestry, fisheries, mining and manufacturing. Wholesale prices are what PPI catches prior to the goods getting priced for retail.
Consumer Confidence Index
The Consumer Confidence Index (CCI) is designed to measure consumer confidence, which is the level of confidence the consumers show through their actions in saving and spending. This indicates the number of consumers willing to spend money which reflects how good or bad the national mood is.
Retail Sales Reports
Economists and investors keep a close eye on retail sales. Retail Sales Reports keep track of the value of retail goods. To predict the direction of future spending trends analysts use this statistic to track consumer spending trends.
During any particular month, the number of current residential construction projects is called Housing Starts. These are observed by analysts and investors monthly in comparison to the previous months’ data. Positive levels of employment and consumer difference oftentimes are a result of a strong housing start measurement.
Manufacturing and Trade Inventories and Sales
The information on the status of business inventories and business sales mostly come from this data set. Most of the time, inventory rates provide hints whether the economy is growing or declining. Growing business inventories may pertain to a slowdown of sales which, in turn, affects the economy’s rate of growth, slowing it down.
S&P 500 Stock Index
The committee of this stock index selects the indexed stocks on market size, liquidity and industry group representation. Periodical replacement of component companies happen and companies that are removed most of the time is because of a merge with another company, financial operating failure and restructuring. The committee fills the vacancies from list of prospective companies in a pool.
Component companies’ changes in stock prices are measured by the index. It is a measurement of future business and consumer confidence and a nation’s stock of capital. A growth may mean a higher consumer spending while a decline may indicate the reduction of spending for businesses and consumers.