What Leading Economic Indicators Tell Us
One of the reasons investing is tricky is because it involves so many factors that we cannot control. One factor, for example, is the specific investment itself. In the case of a stock, the share price relies on company management and leadership; manufacturing, marketing and distribution; and balancing expenses with revenues. Another factor is investor and market sentiment, which can change on a dime based on economic uncertainty, the day’s news or a presidential tweet. Then there’s a third component, which encompasses broader economic events and how they impact investment market fundamentals and the business life cycle. One way we monitor the economy and try to predict market cycles is through economic indicators. These are trackable data points that economists use to get an idea of the direction of specific aspects of the economy. The following is an overview of regular economic indicators considered reflective of the current economy and indicative of future activity. Gross Domestic Product (GDP) GDP measures the total monetary value of all finished goods and services produced in the United States over a specified time period. Economists believe it is the most accurate measure of a country’s overall health. Price Indexes There are several types of price indexes, which are basically a way of tracking prices – and thus cost increases and decreases – in order to measure inflation. The most popular measure is the Consumer Price Index (CPI). It is published monthly and tracks the prices of a “basket” of many of the most common goods and services that urban consumers buy, including food, transportation, clothing and medical care. The Producer Price Index is used to help monitor data from a commercial (wholesale) perspective. It tracks product price changes from a cross-section of sectors in the U.S. economy and is published on a monthly basis. Jobless Claims Report The jobless report tracks the number of workers who file for unemployment benefits, which tends to increase when the economy slows. The report does not track self-employment, contract or part-time employees (none of whom qualify for unemployment benefits). Though published weekly, the report is typically evaluated as a four-week moving average to account for short-term variances. Housing Starts The New Residential Housing Construction Report tracks the number of new building permits issued, which indicates increases or decreases in new construction activity. For reference, new construction usually picks up during the early expansion phase of the business cycle. This housing report generally refers to supply, while the Existing Home Sales Report, compiled by the National Association of Realtors, reflects the current demand for home sales. When viewed together, they offer a balanced assessment of the housing sector. Consumer Confidence Because consumer perspective can influence market fundamentals, economists track what is called a Consumer Confidence Index (CCI), which measures the general outlook of the American population. The CCI monitors a sample of 5,000 U.S. households with regard to consumer spending, which represents 70 percent of the economy. A rise in consumer confidence is typically viewed as a positive indicator for strong economic growth. Purchasing Managers The Purchasing Managers’ Index (PMI) gauges the confidence level of businesses, based on their spending patterns with regard to new orders, inventory levels, production, supplier deliveries and employment. The PMI is comprised of a sample of 300 purchasing executives in the manufacturing sector. For reference, an increase in new orders typically indicates a rise in prices, while a decrease points to a drop in prices. This indicator is generally used to anticipate GDP growth. There are dozens of key economic indicators that signal changes in the direction of the economy. These regular reports help investors, market analysts and wealth managers make day-to-day buy and sell investment decisions.
More Blog Posts
My first day of work as an administrative assistant at CJBS in August 2020 was unlike any other first day I’ve had — not because of the people or the office, but because I started in the middle of a worldwide pandemic. The CJBS office had recently reopened after being closed during the beginning of […]
In the past the beginning of March has always meant certain things to me – we have endured the worst weather of another Chicago winter and spring is close; the groundhog has seen his “tax” shadow so there is only six more weeks of tax season; golf season will soon be here; and a funny John Belushi bit about March coming in like a lion (worth the YouTube search).
When I’m not creating innovative tax and financial strategies for clients, you can usually find me on the golf course. Golf checks a lot of boxes for me. I originally started to play as I saw others developing relationships and business on the golf course. Having never played, I immediately went for some lessons. The first time I hit a four iron long and straight, I was hooked.
In January 2018, I began working at CJBS as an intern at the start of tax season. I was very grateful for the opportunity as I hadn’t had much experience with other organizations by then. It turns out CJBS was the best fit for me. Even during the interview, I knew CJBS was different. My interviewer put me at ease and was both encouraging and supportive, going so far as to offer me advice on my career path during our conversation.
One of the best professional decisions I have ever made was to attend the career fair at Loyola University in September 2018. It was then that I first met members from CJBS. After witnessing my husband’s experience with one of the Big 4 accounting firms, I knew that I would prefer to work at a medium‐sized public accounting firm. What was a great fit for him, was probably not ideal for me.
Last fall, after applying for a summer internship, I had my first conversation with members of the CJBS team via a virtual interview. Right away I knew that CJBS would be a perfect fit. Both Ryan and Susan were welcoming on the call and we connected over their description that accounting is like puzzle solving. […]