Getting to Know Economic Indicators
First things First. What do we mean by economic indicators? In reality, it really is not that complicated. Economic indicators are simply statistics that tell you in what direction our economy is headed. It reveals growth, stagnation or contraction. Some examples of economic indicators that you may heard being tossed around are gross domestic product, money supply and here’s one everyone pays attention to lately, unemployment rate. These are all economic indicators, but there are a whole bunch more.
Thus, when economic indicators are released for public consumption, we are able to discern where the economy might be headed. Of course, the financial markets and the legions of droids that follow it begin buzzing with excitement. It doesn’t take much to get these guys going. So, why the excitement? What are these people looking at that is so good?
Economic indicators, in conjunction with other news or sometimes all by itself, can impact the stock, bond and other financial markets at the moment the information goes public. In addition, some economic indicators paint a picture of the economy over the long and short term. In turn, that may affect businesses, jobs and investments. Therefore, economic indicators are highly anticipated and followed by the financial world.
The Tiered Effect
Economic indicators are informally classified into tiers, with the first, second and third on the radar of most in the financial community. First tier indicators are proven market movers, and are highly anticipated and heavily utilized by traders. The constituents of the first tier varies from one analyst to the next, but in general, the following are considered first tier by nearly everyone: employment, Federal Open Market Committee policy announcements, gross domestic product, personal income report, housing starts, consumer and producer price index, retail sales and durable goods orders. Like I said, the list is not formal and varies a bit from one analyst to the next.
Second and third tiers are even more arbitrary, and the attention that indicators in each vary greatly as well. An example of a second tier indicator may be initial jobless claims, which some watch, while others ignore. Specialists typically are the niche players that pay attention to third tier indicators, such as the natural gas inventory report.
Don’t worry if you are not familiar with the terms presented here, as they will be covered in subsequent posts. Stay tuned for more.