Economic indicators are valuable tools for investors to understand movements within the stock market. Economic reports are consistent in their release, wide in their scope and range, and are free for all investors to analyze.

Policymakers, most notably the Federal Reserve, use indicators to determine not only where the economy is headed but also how quickly it’s getting there. Investors can keep an eye on the same reports to gain a better understanding of current economic conditions that can potentially influence the financial market.

What is an Economic Indicator?

Economic indicators are metrics generated by collecting information about certain parts of the economy. Economic indicators can provide insight into our overall economic health for investors, savers, and consumers.

Leading indicators are used to predict the future movements of an economy or segment of the market. The data included in leading indicators tend to move or change before the economy follows.

Coincident indicators refer to economic metrics that change almost simultaneously with general economic conditions, therefore reflecting the current state of the economy as opposed to backward- or forward-looking. Many policymakers and economists follow this real-time data. Examples of coincident indicators include GDP, employment levels, and retail sales.

Lastly, lagging indicators are backward-looking metrics. These show information after the events have occurred, and are also referred to as trailing indicators. Inflation metrics, unemployment, and interest rates are lagging indicators.

Monthly Economic Indicators 

Gross Domestic Product (GDP)

Released monthly, typically on the last Thursday of the month. There are 3 versions of GDP released a month apart — advance, second release and final.

Gross Domestic Product, or GDP, aims to measure the total value of goods and services produced in the US, adjusted for price changes.

An increase in GDP may not actually reflect the true growth in an economy or an increase in purchasing power if the price of goods and services is also rising.

To remedy this, economists also track the real GDP, which takes this report and adjusts for inflation. Both standard and real GDP are reported quarterly by the US Department of Commerce’s Bureau of Economic Analysis, preceded each quarter by two preliminary estimates of GDP before the official figure is published.

The Department of Commerce’s Bureau of Economic Analysis looks at the change in GDP and breaks down the activity into changes in consumer spending, business investment, and government spending, as well as the net impact of international trade.

GDP is viewed as a leading indicator of economic development and growth (or stagnation), and is often used synonymously with “the economy.” When you read that the economy declined by -32.9% in the second quarter of 2020 and rose by 33% the following quarter, economists are referring to the GDP.

The real GDP is often framed in terms of its percentage growth or decline. When the real GDP increases, it suggests businesses are producing a higher value of goods and services. That means businesses are generally thought to be making more money, suggesting Americans’ increasing standard of living. If the real GDP declines, then the reverse is thought to be true.

Inflation Metrics

Inflation refers to the general rise in the price of goods and services or the decline in purchasing power for the average American consumer. When inflation rises, it sends a signal that the economy might be overheating.

Consumer Price Index (CPI)

CPI is released monthly, typically in the second week of the month.

One of the most important gauges of the economy’s inflation rate is the Consumer Price Index, or CPI, which measures the monthly and annual rate of change in prices paid by US consumers. The Bureau of Labor Statistics (BLS) calculates CPI as a weighted average of prices for a basket of goods and services as a proxy for aggregate US consumer spending.

CPI is based on about 94,000 price quotes collected monthly from around 23,000 retail and service businesses as well as 43,000 rental housing units.

Because CPI is based only on a predetermined basket of goods, it is often critiqued as not providing a holistic view of inflation.

The Producer Price Index (PPI)

PPI is released monthly, typically in the second week of the month.

The Producer Price Index (PPI) is a monthly measure of price change from the perspective of the seller, looking at the sale price received by domestic producers of goods and services. The PPI is timely because it is the first inflation measure available each month.

Economists may sometimes use the PPI to predict upcoming inflation before it shows up in the CPI. Moreover, the PPI is a broader gauge than the CPI as it tracks price changes in the output of nearly all industries in the goods-producing sectors of the US economy.

Personal Income and Personal Consumption Expenditure (PCE)

Personal Income and PCE are released monthly, typically in the second week of the month.

The Department of Commerce’s Bureau of Economic Analysis produces a monthly report of changes in average personal income and expenditures.

Personal income refers to the dollar value of income received from all income streams by individuals, while personal consumption expenditures include consumer purchases of durable and nondurable goods and services.

Also included in this report is the Implicit Price Deflator, also known as the Personal Consumption Expenditure Deflator, and the personal saving rate. Personal Consumption Expenditure (PCE) is a measure of consumer spending used to measure and track monthly and annual changes in the prices of consumer goods.

The personal savings rate is also tracked in this report, measuring how much people are saving as a percentage of disposable personal income.

The Jobs Report 

The Jobs Report is typically released on a Tuesday, often the second or third Tuesday in a month. 

The labor market plays a vital role in the strength of the economy and financial markets. In a nutshell, the Jobs Report tells us how many people are working now, how many people are looking for work, how much people are getting paid, and how many hours people are working.

When more businesses are hiring, that can suggest to investors that businesses are performing well. Some also use this figure to predict that people will have more money to spend.

Nonfarm Payrolls

Nonfarm Payrolls are typically released on the first Friday of every month. 

On the first Friday of every month, the US Department of Labor’s Bureau of Labor Statistics (BLS) releases both an estimate of the cumulative number of jobs created or lost in the prior month and a percentage figure representing the proportion of people not employed and actively looking for work.

The nonfarm payrolls figure represents the total number of workers employed by US businesses, excluding general government employees, those working in private households, employees of non-profit organizations that provide public assistance, and those that work on farms.

The data is generally expressed in the cumulative number of job openings or lost positions.

The Unemployment Rate

The unemployment rate, on the other hand, is determined through a monthly survey of 60,000 households. It estimates the percentage of Americans that were unemployed in the reference period with respect to which the survey was taken and made specific efforts to find employment. 

Individuals who don’t have jobs but are not looking for employment are not considered part of the labor force and therefore are not included in the unemployment rate.

When the unemployment rate rises unexpectedly — or even declines less than expected — that may be associated with a drop in stock prices as it may suggest that cash-strapped employers are tightening their belts.

Consumer Confidence and Consumer Sentiment

The Conference Board publishes the Consumer Confidence Index on the last Tuesday of every month. The Consumer Sentiment Index is published on the second Friday of each month.

The Conference Board, a business and research organization, releases its Consumer Confidence Index based on a monthly survey of 5,000 households, which asks consumers how confident consumers are about the state of the economy.

It attempts to get a pulse on how consumers feel about current business conditions, the labor market, and how they feel about the future.

The University of Michigan publishes a similar measure, the Consumer Sentiment Index, twice a month. An increase may suggest that confident consumers will spend more, helping the economy grow and eventually leading to stronger corporate earnings.

Retail Sales

The Retail Sales data tends to be released on or around the 13th of every month.

As its name suggests, the retail sales report is a measure of all sales by US retail stores. It’s published monthly by the US Department of Commerce’s Census Bureau and, as with other economic indicators, its rise and fall can have a direct effect on the stock market — especially the retail sector of the market.

When retail sales are higher it means consumers are spending more and companies tend to perform better. When sales are lower, the opposite is true.

Durable Goods Orders

Durable Goods data is published on the last Tuesday of every month.

While retail sales are an indicator of consumer spending, durable goods orders are an indicator of manufacturing activity. The term “durable goods” refers to consumer products that typically aren’t replaced for at least three years such as cars and large appliances. Durable goods orders are a measure of new orders that manufacturers receive for such goods, indicating their inventory supplies.

An increase in durable goods orders is usually seen as a sign of economic health and may be associated with increases in stock indices, while a decline may indicate trouble ahead.

Home Sales & Building

Existing-Home Sales are released around the third Thursday of each month. Pending Home Sales are released the following week.

Home sales represent one of the largest purchases many individuals make. Thus, the Department of Commerce’s monthly report on new residential sales speaks to consumer sentiment.

The home sales report is based on contracts to buy new or existing homes, providing input on sales of single-family homes regionally and nationally. It also reports on the 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.

The Department of Commerce also releases a monthly report on the number of houses that builders are working on as well as the number of permits that they obtain to start building homes. This report indicates real estate developers’ confidence level in the economy.

The Home Price Index (HPI)

HPI is typically released on the last Tuesday of every month.

The HPI is a broad measure of the movement of single-family property prices in the US. Aside from serving as an indicator of house price trends, it also functions as an analytical tool for estimating changes in the rates of mortgage defaults, prepayments, and housing affordability.

The Federal Housing Finance Agency (FHFA) publishes the HPI monthly and quarterly using data provided by Fannie Mae and Freddie Mac — AKA the Federal National Mortgage Associate (FNMA) and the Federal Home Loan Mortgage Corp. (FHLMC) respectively.

How to Use Economic Data as an Indicator

It’s one thing to look at the economic calendar and know where to find reports, it’s another thing to know how to use them. Economic indicators can be helpful in making investing and purchasing decisions and gaining insight into why the Fed and policymakers make certain changes.

Learn which indicators are lagging, coincident or leading to understand what the data is telling you. Making forward-looking decisions based on lagging data may not be as useful as making decisions based on forward-looking data.

Bottom Line

Economic indicators and monthly economic reports can be useful tools to understand the current state of the economy and help to forecast an economic outlook. Some of the most important indicators include the GDP, CPI, and unemployment rate.

While these reports can help to guide you in investment decisions, it’s important to always look at them in a broader context. For a full list of upcoming economic reports, you can visit the U.S. Census release schedule.

This material is provided for informational and educational purposes only. It is not intended to be investment advice and should not be relied on to form the basis of an investment decision.