DEFINITION of 'Barometer'

Barometers are data points that represent trends in the market or the general economy. The Standard & Poor's 500 Index and the Dow Jones Industrial Average (DJIA) serve as barometers of stock market performance, and are often used as barometers for the U.S. economy as a whole. It is quite common for a stock index or exchange to be used as a barometer for national economic health. Barometers can also be used to measure behavior at the consumer level. For example, slowing sales at high-end restaurants while revenues at fast-food eateries are increasing may be an indication consumers are reigning in their spending. 

BREAKING DOWN 'Barometer'

Barometers are sequential data points that measure the direction and strength of trends ranging from global economies to consumers in specific regions. These measurements can be used as single trend indicators or aggregated and assessed for correlating data points. Generally speaking, high data correlation indicates trends that have traction and may be building strength, while measurements showing mixed signals may be indicative of directionless markets. Examples of economic barometers include the unemployment rate, job creations and inflation rates.

Economic Barometers

Many of the barometers that measure economic trends are issued by government agencies and departments. For example, the monthly unemployment rate and inflation data are announced by the U.S. Department of Labor, while the quarterly gross domestic product (GDP) report is issued by the U.S. Department of Commerce. These barometers provide a general accounting of the health of the economy at the macro level using massive amounts of data collected across the country.

Market Barometers

Headline barometers such as the S&P 500 Index measure the broad market by tracking the price performance of a diverse portfolio of companies representative of the U.S. economy. Sector-level barometers can provide intelligence on developing trends in specific industries, which can be indicative of trends for both the economy and consumer behavior. For example, increasing sales by companies in the consumer cyclical sector, which includes electronics, apparel and travel companies, may be indicative of a healthy economy in which discretionary income is increasing.

Consumer-level Barometers

Barometers that measure consumer behavior include housing sales, consumer spending and durable goods sales. These barometers are followed closely because consumer spending represents approximately 70% of the nation’s GDP, and the earliest signals of shifts in the economic landscape are often indicated first by changes in consumer behavior. Tracking these behavioral changes, especially when barometers are tightly correlated, can help businesses stay ahead of the curve by taking proactive measures and making informed decisions on short- and intermediate-term strategies, management of inventories and expansion.

RELATED TERMS
  1. Consumer Sentiment

    Consumer sentiment is astatistical measurement and economic indicator ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Consumer Confidence Index - CCI

    The Consumer Confidence Index (CCIA) Survey by the Conference ...
  4. Present Situation Index

    The Present Situation Index measures overall consumer sentiment ...
  5. Consumer Spending

    Consumer spending is the amount of money spent by households ...
  6. Westpac Consumer Confidence Index

    The Westpac Consumer Confidence Index is an index measuring the ...
Related Articles
  1. Insights

    Boom-Bust Gauge Predicts Bounce Off Market Highs

    The widely referenced boom-bust barometer predicts that the recent market surge might be premature.
  2. Trading

    3 Chart Patterns That Suggest Prices Are Headed Lower

    Long-term sell signals on the charts of some larger players suggest that the broader markets could be prepping for a major move lower.
  3. Investing

    Consumer Stocks Maybe The Canary In The Coal Mine

    Consumer stocks are a gauge of the overall health of the economy. So watch them closely.
  4. Investing

    Yes, the U.S. Economy Is Accelerating: Here Are 2 ETFs to Buy

    The earnings turnaround is a promising barometer of future economic growth.
  5. Investing

    Why Do Companies Care About Their Stock Prices?

    A company's stock price reflects the company's earnings potential, its future viability, determines management compensation can play a critical role in mergers and acquisitions.
  6. Investing

    How to Predict Where the Market Will Open

    Find out how some indicators help investors predict the likely opening direction of stocks. Also, determine how international markets influence the open.
  7. Investing

    Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
  8. Insights

    5 Upcoming Market-Moving Events

    If you can anticipate the news that these reports contain, your portfolio will be in for some huge gains.
RELATED FAQS
  1. What are these points that the Dow is always gaining or losing?

    Points on the Dow represent dollars and show whether the stocks of the 30 companies that make up the index went up or down ... Read Answer >>
  2. What is GDP and Why Is It So Important To Investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. What does ... Read Answer >>
  3. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  4. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
  5. What Are the Best Measurements of Economic Growth?

    Learn how economists and statisticians track economic growth and why GDP might not be the best measurement of real economic ... Read Answer >>
Trading Center