In addition to paying attention to the level of the S&P 500 and the 10 year US Treasury bond investors can divine the health of the economy from watching a handful of important indicators.
Top Economic Indicators to Watch and why they Matter
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Real GDP (Gross Domestic Product) – What is it? The real GDP is the market value of all goods and services produced in a country during a specific time period. Real GDP measures a nation’s wealth by indicating the level of output produced by the nation. It is labeled “real” because each year’s data is adjusted to account for changes in year-to-year prices. The real GDP is a comprehensive way to gauge the health and well-being of a nation’s economy.
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Consumer Price Index (CPI) – CPI measures changes in the prices paid for a basket of goods and services by urban consumers for the specified month. The CPI is essentially a measure of individuals’ cost of living changes and provides a gauge of the inflation rate related to purchasing those goods and services.
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Producer Price Index (PPI) – PPI is a group of indexes that measures the changes in the selling price of goods and services received by U.S. producers over a period of time. Think of it as the business-side equivalent to the CPI.
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Jobs Data – Data on national employment, unemployment, wages and earnings. Data across all non-agriculture industries, including all civilian government workers. The most important measure is the monthly Unemployment Rate released the first week of every month.
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Housing Starts – An approximation of the number of housing units on which some construction was performed during the month. Housing starts are highly sensitive to changes in mortgage rates, which are affected by changes in interest rates. Housing represents about 4% of annual GDP, and can signal changes in the economy and the effects of current financial conditions.
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Retail Sales – Tracks monthly U.S. retail and food service sales, details changes from previous periods, and identifies in which sectors sales increased and/or decreased. The numbers measure consumers’ personal consumption across retail industries and track growth or deceleration of personal consumption spending, which makes up approximately two-thirds of the annual U.S. GDP.
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Money Supply – M2 money supply represents the aggregate total of all money a country has in circulation. The Federal Reserve uses this data to assess current economic and financial conditions, and to help alter its monetary policy, which includes raising and lowering interest rates. The Fed’s actions are aimed at bolstering or reducing the money supply.