Every week, dozens of economic surveys and government numbers are released and reported on in the business news. Some are "lagging indicators" that confirm or refute what we thought we knew. Others are "leading indicators" that can be read as signals of trends to come. In any case, they move the markets, some more than others.

The following are the four big categories of economic indicators, and what they can tell you.

Employment

Employment is perhaps the most important indicator of the health of the economy. On the first Friday of each month, the U.S. Bureau of Labor Statistics releases two closely watched reports. These are tracked from month to month, and it's important to know whether the numbers are going up, down, or sideways.

  • The unemployment rate tracks the number of workers who are currently out of jobs.
  • The nonfarm payrolls report tracks the number of jobs that have been added or eliminated in the economy overall.

These monthly reports can cause some of the biggest one-day movements in both the bond market and the stock market..

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4 Key Indicators That Move The Markets

Inflation

The mandate of the Federal Reserve is to promote economic growth and price stability in the economy. Price stability is measured as the rate of change in inflation, so market participants eagerly monitor monthly inflation reports to determine the future course of the Federal Reserve's monetary policy.

There are many indicators of inflation, but perhaps the most closely watched is the Consumer Price Index (CPI). The CPI measures the change in the prices of ordinary goods that most people spend money on, such as clothing and medical services.

There are important variations such as Core CPI, which excludes energy and food spending because their costs are so volatile they can skew the whole index.

Producer Prices

Another important measure is the Producer Price Index (PPI). This focuses on the costs related to manufacturing goods, as increases in those costs inevitably will be passed along to the consumer.

Like the CPI, the PPI is often presented as a "core" number that omits those volatile energy costs.

Market participants also keep track of the price of important commodities such as oil. Since oil is such a vital component of economic activity around the globe, its price is worth paying special attention to.

Oil Prices

Higher oil prices can lead to higher prices for a wide variety of products because oil is an ingredient in many materials and products. It also increases the cost of transporting goods waiting to be sold, and the cost at which they will sell.

Deflation is seen as a negative factor just as much as inflation is. Prices drop because demand falls off. Corporate profits fall as prices fall. Production is cut and workers are laid off. And so on.

Consumer Activity

Consumers make up nearly 70% of all U.S. economic activity. Thus, their spending patterns and even their levels of optimism about their economic well-being are important to track.

When people are insecure about their jobs, consumer confidence drops. Fewer people make large purchases. Corporate profits drop. And that's one more related number to watch:

  • The Consumer Confidence Index is released on the last Tuesday of each month. It indicates how optimistic people are about their own economic prospects and, therefore, how willing they are to spend money

The Consumer Confidence Index is considered one of those "leading" indicators. The degree of confidence in their own economic wellbeing that consumers have makes them willing or unwilling to consider buying a new car or going on a vacation.

Retail Spending

Changes in the actual spending activity of consumers, on the other hand, are lagging indicators, but they still have a direct impact on corporate profits and the level of stock prices.

One of the most important indicators here is the retail sales report published monthly by the U.S. Census Bureau based on a survey of 4,900 businesses.

The Housing Market

The housing market is also a vital economic indicator. Housing is a highly localized business and is difficult to measure on a national basis. Nonetheless, market participants pay attention to monthly releases on housing starts, building permits, and new home sales in order to get a reading on the level of activity in the housing market.

Market watchers also monitor housing price changes through a variety of indicators such as the S&P/Case-Shiller Home Price Index, which monitors home price changes in 20 American cities.

By synthesizing a variety of housing reports, market participants can deduce whether or not people are willing to commit to buying a new home or, for that matter, any large purchases.

Investor Activity

The best time to invest in stocks is not when everyone is bullish, but when almost everyone is bearish. Buy when stocks are cheap. Hold until they go up.

Therefore, readings of investor sentiment are important. A variety of indicators are published by large investment firms and research firms, which periodically poll their clients to determine market consensus.

As overseas investors have become increasingly important participants in the U.S. financial markets, measures of their activity have garnered more attention. One of the most closely watched reports focuses on the purchase of U.S. Treasuries by foreign central banks. When central banks are buying more Treasuries, interest rates often head lower, and when rates are lower, stock prices tend to move higher.

Other important market indicators include the ratio of advances to declines and the number of new price highs and lows in the market. These readings indicate how healthy the overall stock market is and can provide confirmation as to the quality of a stock market advance or decline.