Economic Indicators — Taking the pulse of the economy
Here are some of the most prominent economic indicators and how they can affect financial markets.
Indicators help you understand where the economy is today and where it may be headed.
- Consumer Confidence Index (CCI) — The CCI measures how confident consumers are about the state of the economy by tracking their willingness to spend or save money. When consumer confidence is up and people will likely be spending, the stock market may rise.
- Consumer Price Index (CPI) — Also known as the cost of living index, CPI is the benchmark inflation guide for the U.S. economy. This monthly report can have an effect on both the stock and bond markets. A rising CPI usually means inflation is going up. The CPI may also drive cost of living adjustments to pensions, Medicare and insurance policies.
- Gross Domestic Product (GDP) — The GDP is an indicator of a country’s economic health because it measures total economic production. Investors typically expect long-term GDP to be about three percent. If it declines in two consecutive quarters, that could indicate a recession. If it rises, it may indicate inflation.
- Housing Starts — This indicator tracks the number of new single-family homes and buildings started and completed each month. The American economy is closely tied to the real estate markets so rising housing starts can indicate economic growth. A decline in housing starts is typical after the Federal Reserve raises interest rates, which makes it more expensive to get a mortgage.
- Retail Sales Index — This indicator tracks the dollar value of merchandise sold by retailers from the national mega-marts to the corner grocery store. The release of this report can cause above-average stock market activity and can be a predictor of inflation.
Use indicators to help manage risk
Before you decide to invest in a particular company, industry or country, it makes sense to check that investment through the lens of the economic indicators. It could help steer you to investments that may make your portfolio feel a lot healthier.