Economic Indicators 101 - Part I

Economic indicators are statistics that tell us how well the economy is doing.

The most important American Economic Indicators are published monthly by The United States Congress.  Here’s a link to the indicators for August, 2008.

These indicators effect the market in 2 ways:

Procyclic indicators - have a direct relationship to the economy.  As they go up, the market goes up.  An example of this is Gross Domestic Product (GDP.)

Countercyclic indicators - have an inverse relationship on the economy.  As they go up, the economy is likely to be going down.  Examples of this are unemployment rates and inflation rates.

Their effect can be

• leading - the indicator change occurs before its effects on the economy
• lagging -  the indicator change occurs as a result of what’s happening to the economy, or
• coincident - it changes as the economy changes

“The indicators fall into seven broad categories:

1. Total Output, Income, and Spending
2. Employment, Unemployment, and Wages
3. Production and Business Activity
4. Prices
5. Money, Credit, and Security Markets
6. Federal Finance
7. International Statistics

Each of the many statistics in these categories helps create a picture of the performance of the economy and how the economy is likely to do in the future. Investment strategies are adjusted depending upon current indicators.  Mere rumors about economic indicators often have a strong effect on Wall Street.

In my next post in this series I’ll look at each of these categories in more detail.

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