The United States government releases economic indicators to the public. Economic indicators are vital to identifying current economic trends and determining how the trends will affect investments. The data included in economic indicators is either lagging, leading or current. To identify economic trends, investors must understand important economic indicators. Identifying current economic trends and the investments that are likely to benefit from them is important to the long-term success of investors.
Gross Domestic Product
The overall health of a country is measured through its gross domestic product (GDP). GDP represents the purchases of a country’s good and services by consumers, businesses, foreign countries and governments. GDP in the United States is reported on a quarterly basis. Looking at the growth rate of GDP helps identify current economic trends. The average growth rate of GDP is around 3 percent. If GDP is significantly higher than the average, the growth is typically considered unsustainable and can result in high inflation. GDP that is below the average means that the economy is growing slowly, which can result in a decrease in consumer spending and higher unemployment.
The consumer spending data shows the amount of money consumers are spending on goods and services. Personal consumer expenditures are measured on a monthly basis. Consumer spending is important because it shows consumers’ confidence in the economy. When consumers are pessimistic about the economy, consumer spending is low. Consumers who are optimistic about the economy will spend money. Consumer spending can also affect investments because the profits of many companies depend on whether consumers are purchasing their goods and services. Low consumer spending can cause the financial markets to decline, while high consumer spending generally cause financial markets to increase.
The primary measure of employment growth is the non-farm payroll report. It shows the number of jobs added to the economy, excluding the farming industry. Employees in the farming industry are typically seasonal workers. Since employment information from this sector is not consistent, it is excluded from economic data. Economic growth can help identify current trends because it shows companies' viewpoint of the economy. When the economy is struggling, employers may layoff workers. Employers typically hire workers when the economy is strong. Employment growth generally affects the financial markets in a positive manner.
Consumer Price Index
The consumer price index (CPI) is an important economic indicator that is commonly used to determine inflation. Investors identifying current economic trends should look at inflation because it shows the rising cost of goods and services. The CPI report is made public on a monthly basis. CPI data shows the change in cost for a variety of goods, which include consumer goods, energy and foods. Prices used to calculate CPI are derived from a sample of prices at different stores. The prices of certain goods are volatile, such as food and energy. These goods are excluded from the core rate included in most CPI reports. Many investors believe the core rate gives a better measure of inflation.
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