Economic Indicator: Definition and How to Interpret

It’s not just announced changes to the FOMC’s target range for the federal funds rate that can move markets. Such hints are sometimes found in the minutes of the FOMC’s meetings, which are released three weeks after each regular meeting. The Conference Board, a business and research organization, releases its Consumer Confidence Index on the last Tuesday of every month. The figure is based on the Conference Board’s monthly survey of 5,000 households, which asks consumers how confident consumers are about the state of the economy.

1. Current inflation, how strong it is, and what it could be in the future are all vital in determining prevailing interest rates and investing strategies.
2. The vacancy rate rose from 25.1 percent to 25.3 percent, equivalent to over 58 million square feet of vacant space.
3. Consider how the Federal Reserve’s target rate of inflation is usually 2%.

The positive momentum in industrial leasing continued in the fourth quarter, driven by demand from third-party logistics, manufacturing and retail firms. Net absorption was 9.1 million square feet, more than double the space absorbed in the third quarter, according to CBRE (Chart 6). The vacancy rate climbed to 8.1 percent due to the elevated level of deliveries that totaled 19.6 million square feet in the fourth quarter.

What Are Economic Indicators?

Therefore, while inflation and other lagging indicators are still useful to investors, they are especially critical for developing future policy responses. Changes in business inventories is an important leading economic indicator as they indicate changes in consumer demand. New construction including avatrade forex review new home construction is another procyclical leading indicator which is watched closely by investors. A slowdown in the housing market during a boom often indicates that a recession is coming, whereas a rise in the new housing market during a recession usually means that there are better times ahead.

It includes a collection of discussions from each of the 12 Fed districts, along with a summary statement, all of which are presented in the non-committal, measured tones known as “Fed speak.” Department of Commerce highlights spanning a wide range of issues promoting job creation and economic growth, programs, and events in one blog post. FINRA Data provides non-commercial use of data, specifically the ability to save data views and create and manage a Bond Watchlist. New orders for manufactured goods in December, up four of the last five months, increased $1.2 billion or 0.2 percent to $594.3 billion. January 2024 end-of-month inventories were $804.8 billion, up 0.5 percent (+/- 0.2%) from last month.

A trend that may affect what seems to be only one smaller group may actually suggest an income problem for the entire country, rather than just the group it initially affects. So far, the only country to not use GDP as an economic measure is the Kingdom of Bhutan, which uses the Gross National Happiness index as an alternative. Our linking to these sites does not constitute an endorsement of any products, services or the information found on them. Once you link to another site you are subject to the policies of the new site.

The report measures prices for finished goods, intermediate goods and crude goods. Prices from thousands of establishments are tracked each month and are recorded on the U.S. CPI measures ndax review changes in prices paid for goods and services by urban consumers for a specified month. It offers a gauge of inflation as it relates to purchasing those goods and services.

It also suggests an increase in the standard of living for people in that country. The market’s responses to GDP shifts may also depend upon how one quarterly GDP measure compares to prior quarters, as well as how it compares to economists’ expectations for that current quarter. The Gross Domestic Product (GDP) is widely accepted as the primary indicator of macroeconomic performance. The GDP, as an absolute value, shows the overall size of an economy, while changes in the GDP, often measured as real growth in GDP, show the overall health of the economy. Economic indicators rely on data to substantiate predictions of what is to come in the future. When analyzed correctly, investors can capitalize on data to make successful trades or correctly assess future market conditions.

It combines the monetary value of every good and service produced in an economy for a certain period, and it considers household consumption, government purchases, and imports and exports. For example, capital goods shipments from the Factory Orders Report are used to calculate producers’ durable equipment orders within the GDP report. Indicators such as retail sales and current account balances are also used in the computations of GDP, so their release helps to complete part of the economic puzzle prior to the quarterly GDP release.

Charting the history of indexes over time puts them in context and gives them meaning. For instance, it is not terribly useful to know that it costs $2 to purchase one British pound, but it may be useful to know that the pound is trading at a five-year high against the dollar. In the US, one of the most followed economic indicators is the Institute of Supply Management’s Purchasing Manager’s Index or PMI for short.

Federal Reserve Interest Rate Announcements and Meeting Minutes

For example, the BLS reported that nonfarm payrolls increased by 151,000 jobs in January, based on its survey of about 146,000 businesses and government agencies. As with the real GDP, the number of jobs created or lost in a month is considered an indicator of economic health. When an individual stock moves up or down, it might be the result of a corporate announcement or developments within a particular industry. Nominal interest rates are influenced by inflation, so like inflation, they tend to be procyclical and a coincident economic indicator. Stock market returns are also procyclical but they are a leading indicator of economic performance. One of the most common economic indicators is the Consumer Price Index (CPI), which is simply the weighted price average of a basket of consumer goods and services.

By using the hours-worked data (from the Employment Cost Index) along with the labor report and nonfarm payrolls, investors can get a fairly complete picture of the state of the labor market. The “Monthly New Residential Construction” report commonly referred to as “housing starts” is a report released by the Census Bureau and the Department of Housing and Urban Development (HUD). This report breaks interactive brokers out building permits issued, housing starts, and completions. It is an important leading indicator in that construction activity tends to pick up early in the expansion phase of the business cycle. They are based on the federal funds rate, which is determined by the Federal Open Market Committee (FOMC). The federal funds rate increases or decreases as a result of economic and market events.

Economic indicator

When interest rates increase, borrowers are more reluctant to take out loans. This discourages consumers from taking on debt and businesses from expanding, and as a result, GDP growth may become stagnant. This unemployment rate is determined through a monthly survey of 60,000 households. It estimates the proportion of Americans who were unemployed during the period when the survey was taken. The unemployment rate only reflects people who are unemployed and looking for work.

Without this benchmark, analysts and policymakers wouldn’t know what makes a indicator’s value good or poor. Employment in DFW rose 2.4 percent in December after declining in November (Chart 1). Job growth was mixed across the major sectors, with strong gains seen in manufacturing, financial activities, and leisure and hospitality. Payrolls declined in construction and mining and professional and business services in December. Meanwhile, the Producer Price Index (PPI) is a monthly measure of price change from the perspective of the seller, looking at the sale price received by domestic producers of goods and services. The PPI is timely because it is the first inflation measure available in the month.

However, when incomes decline relative to the average cost of living, it is a sign that employers are either laying off workers, cutting pay rates or reducing employee hours. Declining incomes can also indicate an environment where investments are not performing as well. The term “durable goods” refers to consumer products that usually aren’t replaced for at least a few years, such as refrigerators and cars. Near the end of each month, the Department of Commerce Census Bureau publishes its report on durable goods.

It’s also the indicator that most people look to first, even though it’s not the most important indicator. History has shown strong correlations between economic growth, as measured by GDP, and corporate profit growth. However, determining whether a specific company may grow its earnings based on one indicator of GDP is nearly impossible.

However, there are limitations to the usefulness of the stock market as an indicator because the relationship between performance and estimates is not guaranteed. Indicators provide signs along the road, but the best investors utilize many economic indicators, combining them to glean insight into patterns and verifications within multiple sets of data. One drawback of lagging indicators is that a strategy developed in response to such indicators may arrive later than optimal. For example, by the time the Federal Reserve interprets CPI data and decides how best to enact monetary policy to stem inflation, the numbers it is observing can be slightly outdated. Though lagging indicators are still used by many governments and institutions, they also pose the risk of guiding incorrect decision-making due to erroneous assumptions about present-day economics.