Economic Indicators: Overview

By Ryan Barnes Every week there are dozens of economic surveys and indicators released. In the past, experienced professionals and economists have had an advantage in receiving this data in a timely fashion. Fortunately, the emergence of the internet has changed this situation by giving everyone access. Economic indicators can have a huge impact on the market; therefore, knowing how to interpret and analyze them is important for all investors. In this tutorial, we'll cover some of the most important economic indicators. You'll learn where to find them, how to read them and what they can tell you about he health of the economy - and your investments. An indicator is anything that can be used to predict future financial or economic trends.
Popular indicators include unemployment rates, housing starts, inflationary indexes and consumer confidence. Official indicators must meet certain set criteria; there are three categories of indicators, classified according to the types of predictions they make.

Leading: These types of indicators signal future events. Bond yields are thought to be a good leading
indicator of the stock market because bond traders anticipate and speculate trends in the economy (even though they aren't always right).

Lagging - A lagging indicator is one that follows an event. The importance of a lagging indicator is its
ability to confirm that a pattern is occurring or about to occur. Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy has been doing poorly.

Coincident - These indicators occur at approximately the same time as the conditions they signify.
Rather than predicting future events, these types of indicators change at the same time as the economy or stock market. Personal income is a coincidental indicator for the economy: high personal income rates will coincide with a strong economy.

Economic Forcost:
1. 2. 3. 4. 5. 6. 7. 8. GDP Consumption Investment Government Consumption Exports of Goods and Services Imports of Goods and Services Unemployment (%) Consumer Prices

9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Current Balance (% of GDP) Exchange Rate (vs US$) General Government Balance (% of GDP) Short-term Interest Rates (%) Working Population Labor Supply Participation Ratio Labor Productivity unemployment rates Housing starts Inflationary indexes consumer confidence.

1. Average weekly hours (manufacturing) Adjustments to the working hours of existing employees are usually made in advance of new hires or layoffs, which is why the measure of average weekly hours is a leading indicator for changes in unemployment. 2. Average weekly jobless claims for unemployment insurance The CB reverses the value of this component from positive to negative because a positive reading indicates a loss in jobs. The initial jobless-claims data is more sensitive to business conditions than other measures of unemployment, and as such leads the monthly unemployment data released by the U.S. Department of Labor. 3. Manufacturers' new orders for consumer goods/materials This component is considered a leading indicator because increases in new orders for consumer goods and materials usually mean positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, a precursor to future revenue. 4. Vendor performance (slower deliveries diffusion index) This component measures the time it takes to deliver orders to industrial companies. Vendor performance leads the business cycle because an increase in delivery time can indicate rising demand for manufacturing supplies. Vendor performance is measured by a monthly survey from the National Association of Purchasing Managers (NAPM). This diffusion index measures one-half of the respondents reporting no change and all respondents reporting slower deliveries. 5. Manufacturers' new orders for non-defense capital goods As stated above, new orders lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods/materials component (#3). 6. Building permits for new private housing units. 7. The Standard & Poor's 500 stock index The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy and interest rates. 8. Money Supply (M2) The money supply measures demand deposits, traveler's checks, savings deposits, currency, money market accounts, and small-denomination time deposits. Here, M2 is adjusted for inflation by means of the deflator published by the federal government in the GDP report. Bank lending, a factor contributing to account

deposits, usually declines when inflation increases faster than the money supply, which can make economic expansion more difficult. Thus, an increase in demand deposits will indicate expectations that inflation will rise, resulting in a decrease in bank lending and an increase in savings. 9. Interest rate spread (10-year Treasury vs. Federal Funds target) The interest rate spread is often referred to as the yield curve and implies the expected direction of short-, medium- and long-term interest rates. Changes in the yield curve have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted, that is, when the longer-term returns are expected to be less than the short rates. 10. Index of consumer expectations This is the only component of the leading indicators that is based solely on expectations. This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center, and is released once a month.

The average duration of unemployment (inverted) The value of outstanding commercial and industrial loans The change in the Consumer Price Index for services The change in labour cost per unit of output The ratio of manufacturing and trade inventories to sales The ratio of consumer credit outstanding to personal income The average prime rate charged by banks

Number of employees on non-agricultural payrolls Personal income less transfer payments Industrial production Manufacturing and trade sale

Next: Economic Indicators:

1. Economic Indicators: Overview 2. Economic Indicators: Beige Book 3. Economic Indicators: Business Outlook Survey 4. Economic Indicators: Consumer Confidence Index (CCI) 5. Economic Indicators: Consumer Credit Report 6. Economic Indicators: Consumer Price Index (CPI) 7. Economic Indicators: Durable Goods Report 8. Economic Indicators: Employee Cost Index (ECI) 9. Economic Indicators: Employee Situation Report 10. Economic Indicators: Existing Home Sales 11. Economic Indicators: Factory Orders Report 12. Economic Indicators: Gross Domestic Product (GDP) 13. Economic Indicators: Housing Starts 14. Economic Indicators: Industrial Production 15. Economic Indicators: Jobless Claims Report 16. Economic Indicators: Money Supply 17. Economic Indicators: Mutual Fund Flows 18. Economic Indicators: Non-Manufacturing Report 19. Economic Indicators: Personal Income and Outlays 20. Economic Indicators: Producer Price Index (PPI) 21. Economic Indicators: Productivity Report 22. Economic Indicators: Purchasing Managers Index (PMI) 23. Economic Indicators: Retail Sales Report 24. Economic Indicators: Trade Balance Report 25. Economic Indicators: Wholesale Trade Report

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Real GDP Consumption Business Investment Structures Equipment Intellectual Property Products Residential Construction Exports Imports Federal State and Local Levels

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

Net Export Balance (nominal) Current Account Balance as share of GDP (percent) Price Indexes GDP Gross Domestic Purchases PCE PCE excl food and energy Saving Personal Saving Rate Gross Saving as a Share of NNP Net Saving as a Share of NNP Productivity Nonfarm Manufacturing Unit Labor Costs - Nonfarm Hourly Compensation - Nonfarm Employment Cost Index, compensation, civilian