While it may seem like being a savvy investor comes down to picking the right stocks, it’s equally (and maybe more) important to have a feel for the big picture. One great way to stay in tune: economic reports.
As you could likely guess, the gross domestic product report is the single most important reading on the state of the economy.
But it’s also one of the most overrated.
See, the headline numbers don’t tell you what you really need to know, especially if you’re an investor or trader. GDP readings are subject to big revisions — again and again and again. Oh, and GDP only tells you how the economy was doing months ago — not where it’s headed.
When you think about it, where it’s headed is all that really matters.
Then there’s the monthly jobs report — officially known as the Employment Situation Report — which is the mother of all market-moving economic data points. Of course, that’s hardly a secret (and, like GDP, it’s also better at telling us where we’ve been than where we’re headed).
Fortunately there’s no shortage of lesser-known but still critically important economic releases that serve to paint a pretty clear picture of just where the economy might be going.
Here are seven less glamorous economic reports to keep tabs on throughout the year:
- Weekly Initial Jobless Claims. There’s a tremendous amount of churn in the labor force. Even when the economy is purring along with essentially full employment, more than 300,000 people make new applications for unemployment benefits every week. Since the weekly numbers are noisy, the four-week moving average is a more reliable indicator of labor conditions.
- ISM Purchasing Managers Index (PMI). Manufacturing is a small part of the U.S. economy, but it’s also the canary in the coal mine because this is where slowdowns and recessions tend to begin and end. The Institute for Supply Management releases the PMI survey monthly. Readings below 50 indicate contraction, while anything above 50 means expansion.
- Durable Goods. Another economic release focusing on the manufacturing sector, this monthly report details new orders for durable goods, which include higher-priced, longer-lived things like cars, turbine engines and home appliances. Thus, it gives insight into future economic activity and, by extension, the direction of corporate sales and profits.
- Retail Sales. Consumer spending accounts for about 70% of all U.S. economic activity, and retail sales comprise about half of that total. As such, monthly retail sales offer insight into whether consumers are parting with their hard-earned dollars — and where their money is going. A rise in retail sales is usually a good indicator of the health of consumers.
- Personal Income and Outlays. Like retail sales, this one comes out monthly, and also gives insight into all-important consumer spending patterns. Income, savings and spending are the three basic variables driving everything from sales to imports to business investments to job growth. Most importantly, personal income has proven to be the best way to forecast consumer demand.
- Consumer Price Index (CPI). CPI and core CPI (which excludes volatile food and energy prices) have big implications for stocks and bonds. Measuring price changes in a basket of goods, CPI is the main inflation measure — and every investment needs to generate a return in excess of inflation to be a money maker. Inflation also effects monetary policy. When it gets too hot, the Fed hikes short-term interest rates, which has a range of effects, including acting as a drag on capital expenditures, corporate profits and bond prices.
Economic Surprise Index. The Citigroup Economic Surprise Index offers one-stop shopping to see how various economic data are measuring up against economists’ average expectations. In recent years, at least, it’s had some decent predictive power. For example, the Citi Surprise Index marked the spring peaks in both economic and market momentum in the past few years, notes Jeff Kleintop, chief market strategist at LPL Financial.
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