Economic indicators are tools used by investors and economists and governments and business owners to forecast how the economy is likely to change so they can plan accordingly.
I’ve always followed a couple of economic indicators but I recently picked up a book called The Wall Street Journal Guide To The 50 Economic Indicators That Really Matter by Simon Constable and Robert E. Wright because I wanted to find more to follow. It’s a great book and if you are ever interested in following economic indicators, you’ll find some in there!
Obviously, I can’t follow all 50 but reading the list helped me add to and change the list of economic indicators I’m following.
So here are my 7 favorite economic indicators:
CONSUMER CONFIDENCE INDICATOR
Uses surveys of households to measure how consumers feel about the economy. Although I find surveys to be generally unreliable, the consumer confidence indicator still offers a glimpse into the mind of the consumer, which is a pretty good starting point in any economic study.
Okay, I’m cheating a little by using two economic indicators here instead of one – existing home sales and new home sales (see the press release on this page) – but I like to pay attention to both numbers.
FEDERAL FUNDS RATE
Banks lend each other money and the interest rate they charge each other is set by the Feds (sort-of; I’m simplifying a bit here). This interest rate is a frequently reported number (you’ll hear it on the news a lot) and it determines how much interest banks eventually charge its customers. Feds have traditionally used this number to help speed up or slow down the economy so the Federal Funds rate is a good measure of how the Feds see the economy and what they’re doing about it.
WEEKLY LEADING INDEX
I love this aggregate indicator that measures money supply, industrial price indexes, housing activity, jobs and labor indicators, and prices in the capital markets. Although you’ll need a membership to access some of the information, you can get a good synopsis of the Weekly Leading Index in their news center.
METAL INVENTORIES AND PRICING
Good economies require infrastructure and infrastructure requires metals (mostly copper but other stuff too). Based on the laws of supply and demand, remember that smaller inventories will drive prices higher and bigger inventories will usually drive prices lower. So tracking the inventories and prices of various metals is a great way to see whether economies are building infrastructure or not.
ARUOBA-DIEBOLD-SCOTTI BUSINESS CONDITIONS INDEX
The Philadelphia branch of the Federal Reserve publishes some great data on the economy, including the ADS Business Conditions Index. This aggregate indicator pulls together a lot of really useful economic information on unemployment, industrial production, personal income, sales, and GDP growth.
The Misery Index is one of my favorite aggregate indicators. And it’s so simple, too; just add the inflation rate to the unemployment rate. And voila! You have two depressing numbers combined together in one.
… AND THE RUNNERS-UP
There is also a ton of great economic indicators here:
- The Conference Board offers up a great at-a-glimpse US economic forecast and global economic forecast.
- The Philadelphia Federal Reserve surveys a panel of professional forecasters to get an average look at what these full-time analysts think about the market.
- The Wall Street Journal’s Markets page has a number of economic indicators.
- The Commercial Real Estate Professionals and Investors Group publish some real-time economic indicators and statistics.