In addition to company and industry data, the state of the overall economy can provide insight to investors for their decision-making. For instance, when considering whether to invest in a company that depends on consumer spending, it’s useful to know whether the economy faces a recession.
Economic indicators provide information about an economy and whether it is expanding or contracting. Most indicators are released monthly by government departments and agencies. They typically report on activity in the previous month and year for comparison purposes. Here are 10 important U.S. economic indicators that investors watch.
Key Takeaways
Individuals who measure economic activity and predict future trajectories rely on the analysis of key pieces of macroeconomic data.
Known as economic indicators, these data quantify various aspects of an economy.
Economic indicators measure everything from economic growth to changes in prices to unemployment.
Markets can move to news about key economic indicators.
Information provided by economic indicators can help people make decisions about their investments.
- GDP
The gross domestic product (GDP) of an economy provides the overall value of the goods and services that the economy produces and indicates whether it is growing or slowing.
The Department of Commerce’s look at the quarterly change in GDP breaks down the activity into changes in consumer spending, business investment, and government spending, as well as the net impact of foreign trade. The government puts out a preliminary first estimate, updates with a revised second reading as it gets more input, and then delivers a third and final report.
https://www.bea.gov/data/gdp/gross-domestic-product
- Employment Figures
The Department of Labor puts out a monthly release on employment that includes the number of jobs created the previous month by the private sector, the government, and some specific industries, as well as the national unemployment rate. Low unemployment can point to a strong economy, but can also predict rising inflation.
- Industrial Production
Industrial production is a measure of the output of manufacturing-based industries, including those producing goods for consumers and businesses. This monthly release from the Federal Reserve also reports on capacity utilization in the factory sector.
https://www.federalreserve.gov/releases/g17/current/default.htm
- Consumer Spending
Consumer spending accounts for two-thirds of U.S. gross domestic product and is a good gauge of consumer health. The Department of Commerce’s monthly release on personal income and outlays provides data on consumer spending. It also provides information on inflation through a price index that reflects changes in how much consumers have to spend to buy certain items. Consumer spending made up 68.2% of GDP as of Q2 2023.
https://www.bea.gov/data/consumer-spending/main
- Inflation
Inflation is the general price level rise of goods and services in an economy. Too much inflation can mean the economy is overheating while very low inflation can be a harbinger of economic recession.
Depending upon the selected set of goods and services used, multiple types of inflation values are calculated and tracked as inflation indexes. The most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI). The Producer Price Index (PPI) is also used to measure inflation as it relates to producers.78
- Home Sales
Home sales represent a major purchase for most people. Thus, the Department of Commerce’s monthly report on new residential sales speaks to consumer sentiment.
This report, based on contracts to buy new or existing homes, provides input on sales of single-family homes regionally and nationally. It also reports on median and average sales prices. The National Association of Realtors (NAR), a private realty trade association, puts out a monthly report on sales of existing homes, based on closed sales.
https://www.census.gov/economic-indicators/
- Home Building
The number of houses that builders started working on, as well as the number of permits that they obtained to start building houses, indicates real estate developers’ confidence level in the economy. The Department of Commerce’s monthly release on new residential construction provides this regional and national information.
https://www.census.gov/economic-indicators/
- Construction Spending
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.
https://www.census.gov/economic-indicators/
- Manufacturing Demand
The report on manufacturers’ shipments, inventories, and orders gives an indication of demand for manufactured items. The Department of Commerce puts out a preliminary monthly report and a more lengthy report as a follow-up. They break down manufactured goods by many types and industries, from electronic instruments to machine tools to nondurable consumer goods.
https://www.census.gov/economic-indicators/
- Retail Sales
The Department of Commerce’s monthly release on retail and food services sales is an indication of consumer spending health. This report shows retail sales in various sectors, such as department stores, furniture stores, and home furnishing stores.
https://www.census.gov/economic-indicators/
What Is an Economic Indicator?
It’s a metric that’s generated by the collection of information about certain parts of an economy. Economic indicators can provide insight into overall economic health. They help policymakers, such as government employees and Federal Reserve board members, determine a course of action for the economy, as well as assist investors in their investment choices.
Where Can I Find Economic Indicators?
Various departments and agencies of the U.S. government release reports on U.S. economic indicators. These sites include the Census Bureau, the Bureau of Labor Statistics, and the Bureau of Economic Analysis. In addition, business and market publications and websites typically issue economic indicator news upon its release.
Is a Macroeconomic Indicator the Same As an Economic Indicator?
Yes. You’ll see both terms used. Macroeconomics is a branch of economics that focuses on the larger view of the economy, such as markets, businesses, and consumers. Individual indicators that reflect different areas of the economy, such as GDP, inflation, and unemployment, all parts of macroeconomics, help people assess the behavior of the overall economy.
The Bottom Line
No one key indicator paints a complete picture of the state of the economy; however, a combination of indicators—such as the top 10 key economic indicators described above—can be used to inform a variety of economic and investment decisions.
Other Sources
Federal Reserve Calendar
https://www.federalreserve.gov/newsevents/calendar.htm
FOMC Meetings
https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm