Economic indicators may be leading, lagging, or coincident indicators. These indicators help an investor or trader confirm or disprove his or her conclusions regarding the market. More importantly, they help him or her know the market trends. Here are some of the most important economic indicators for market trends.
Market indices offer predictive abilities to investors, so it should be current and forward-looking. It also has to discount values based on future expectations.
The most insightful statistics about the economy’s direction start with major market indices for stocks, stock futures, bond interest rates and yield curve, forex, and commodity prices.
Weekly Data Reports
Every week, some important economic reports also come out for the public to see.
The weekly jobless claims report comes weekly from the Department of Labor. When the economy weakens, unemployment rates go up.
On the other hand, this report has a bias in that self-employed, part-time, and contractual employees who lose their jobs do not get the benefits. Therefore, they don’t count.
Meanwhile, the money supply report also comes out weekly. It comes from the Federal Reserve, and it’s an abstract technical calculation of how much money is in circulation in the economy.
On the other hand, because of digital improvements wherein huge amounts of money can move across the globe in a snap, this indicator has lost its value over the years.
Monthly Data Reports
There are also economic data that come out every month.
The New Residential Housing Construction Report is an example. It comes from the Census Bureau and the Department of Housing and Urban Development (HUD), and it’s commonly called “housing starts.”
This report breaks down the number of building permits issued, housing starts, as well as completions. The data is an important leading indicator because construction activity typically picks up early in the expansion phase of the business cycle.
Meanwhile, the Consumer Confidence Index (CCI) comes from the Conference Board. It’s one of the many reports that gauges the correspondents’ attitude and sentiment.
It is not necessarily exact or precise. However, it scores high on accuracy when it comes to predicting consumer spending. And consumer spending accounts for 70% of the economy.
Industrial and Manufacturing Report
There are also important reports that tell something about industrial and manufacturing growth.
The Durable Goods Report (DGR) from the Census Bureau is one such report. It is used as a barometer for the health of heavy industry, and it surveys manufacturers of goods with a life expectancy of more than three years.
Such purchases by businesses represent capacity expansion. Meanwhile, sales at retail indicate increasing confidence among consumers.
Because of the high volatility on a monthly basis, moving averages are used. Year-over-year comparisons are also utilized to spot the pivot points in the economy.
Meanwhile, the Factory Order Report, also coming from the Census Bureau, is a more detailed and less timely report than the GDR.
The main downside of this indicator is that it fails to account for price changes that can greatly impact inventories during both inflationary and deflationary times.