Economic Indicator: Definition and How to Interpret

Economic Indicator: Definition and How to Interpret

With that in mind, the U.S. economy has suffered 10 recessions since the S&P 500 was created in 1957. The chart below details the index’s peak decline during those economic downturns. As the economy looks like it’s getting back to growth, it’s a good idea to have some Visa stock in your portfolio. Visa just updated shareholders with its latest earnings results, for the 2024 first fiscal quarter (ended Dec. 31). Revenue increased 9% over last year, and earnings per share (EPS) were up 20%. It’s still benefiting from a return to travel, with cross-border volume up 16%.

U.S. retail and food services sales for December 2023 were $709.9 billion, up 0.6 percent (+/-0.5 percent) from the previous month. New orders for manufactured durable goods in December, up three of the last four months, increased $0.1 billion or virtually unchanged to $295.6 billion. The homeownership rate of 65.7 percent was not statistically different from the rate in the fourth quarter 2022 (65.9 percent). The homeownership rates, compared to the fourth quarter 2022, were lower in the Northeast and West, higher in the South, and not statistically different in the Midwest. The relative strength index (RSI) is a technical analysis indicator that compares the size of recent gains to recent losses.

  1. It was the year that interest rates increased so that inflation could come down.
  2. Raising inflation can distort the economy and the value of its currency.
  3. Plenty of economic risks remain that could derail the apparent progress.
  4. The increase in debt will reduce the credibility of the local currency.
  5. Therefore, while inflation and other lagging indicators are still useful to investors, they are especially critical for developing future policy responses.

CPI is a lagging indicator, and the U.S. relies on it heavily as one of the best indicators of inflation. This is because changes in inflation can spur the Federal Reserve to make changes to its monetary policy. For example, GDP is procyclical because it increases if the economy is performing well.

Homeownership Rate

In addition, economic indicators reported by governments often have a fixed cadence and steady form of measurement. This means you can usually rely on the method of how an indicator was calculated and the timing of when that indicator will be released. If you’re particularly interested in a specific economic indicator released monthly by the government, be aware that reports are often released on the same day of every month at the same time. In addition, many economic indicators have a benchmark set, whether by a government agency or other entity. Consider how the Federal Reserve’s target rate of inflation is usually 2%.

Economic Indicator: Definition and How to Interpret

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Interpreting Economic Indicators

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. Financial analysts and investors keep track of macroeconomic indicators because the economy is a source of systematic risk that affects the growth or decline of all industries and companies.

In order to make timely decisions, alternative economic indicators that are released more frequently are used. The indicators, which are selected based on a high predictive value in relation to GDP, are used to forecast the overall state of the economy. The data is compiled by various agencies and organizations and delivered as reports. Although these measures are crucial to investors, they are not generally regarded as economic indicators per se.

The month-to-month variance in the readings is due in part to the small sample size. The “Existing-Home Sales” news release is released by the National Association of Realtors. Whereas the housing starts report focuses on supply, this report focuses on demand. Economists typically group macroeconomic statistics under one of three headings—leading, lagging, or coincident.

Housing starts are an estimate of the number of housing units on which some construction was performed that month. Data is provided for multiple-unit buildings as well as single-family homes. The data also indicates how many homes were issued building permits and how many housing construction projects were initiated and completed. One of the reasons why PMI is one of the most followed economic indicators is because of its strong correlation with GDP while being one of the first economic indicators to be released monthly. The component GDP that the PMI most closely relates to is the Investment component.

Therefore coincident indicators may only be useful to those who can correctly interpret how economic conditions today (i.e. falling GDP) will impact future periods. Another construction-based indicator is the change in monthly construction spending, in dollars, nationally. This spending encompasses various construction-related expenses, such as labor and materials and engineering work. The Department of Commerce’s report provides a breakdown of residential and nonresidential public and private construction.

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. All estimates are seasonally adjusted except for the Rental Vacancy Rate and Home Ownership Rate.

Technical Indicators

In practice, this means that using a range of different leading indicators that are more or less accurate, precise, and forward-looking can provide the best opportunity to capitalize on future trends. Conversely, positive customer satisfaction data may suggest that these factors will trend upward in the future. All businesses track their own bottom lines and balance sheets, but such data are lagging indicators, meaning they’re produced by events that have already happened. Importantly, a business’ past performance does not necessarily indicate how it will do in the future.

They include the Consumer Price Index (CPI), Gross Domestic Product (GDP), and unemployment figures. The retail sales report is a measure of all sales by U.S. retail stores. Its rise and fall can have a direct impact on the stock market, or at least the retail sector.

Using tools like the MACD and the RSI, technical traders will analyze assets’ price charts looking for patterns that will indicate when to buy or sell the asset under consideration. The Index of Lagging Indicators is published monthly by The Conference Board, a non-governmental organization, which determines the value of the index from seven components. Depending upon the selected set of goods and services used, multiple types of inflation values are calculated and tracked as inflation indexes.

However, the market’s response is not solely dependent on whether the real GDP increases or decreases. How you use leading indicators will depend on your financial goals and the types of investments you have. Genuine progress trading212 broker indicator (GPI) is a metric used to gauge a country’s rate of economic growth. It is often considered a more reliable measure of economic progress than the more widely used gross domestic product (GDP) figure.