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Investors use economic indicators to gauge investment opportunities and judge the overall health of an economy.

Economic indicators can be just about anything an investor chooses, but investors are typically most intrigued by specific pieces of information that governments release. A few include:

  1. The Consumer Price Index
  2. The Gross Domestic Product
  3. Unemployment figures
  4. The prices of crude oil

For example, investors will pay close attention to GDP, which represents the total dollar value of all the goods and services an economy produces. A healthy economy typically has low unemployment and strong wages as businesses expand and hire labor to meet growing demands for their products. GDP grows as the economy grows.

But say GDP fell 3% year-to-year, meaning the total dollar value of all goods and services produced this year compared to last was 3% lower. That will affect the stock market – a contracting economy usually means lower profits for companies, and that means lower stock prices.

Determining how an economic indicator applies to a single company is a different story. It’s true that GDP and corporate profits typically move in unison, but one company may buck the trend and move in its own direction, independent of what the economy is doing.

That’s why the best investors use many economic indicators to verify their conclusions, and to decide the best times and places to invest their money.

Most economic indicators are on a macroeconomic scale, and they have a specific release time that investors prepare for.

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