It must be current, forward-looking, and discounted based on future predictions for an economic indicator to be useful for investors. The key market indices and the information they provide on the economy's direction are a good place to start when it comes to meaningful economic statistics. Stock exchanges, as well as futures and options
Rates of interest on bonds and mortgages, as well as the yield curve Rates of exchange Preciseness of precious metals and agricultural products Investors rely on these metrics. Still, they aren't considered economic indicators in and of themselves. This is because they only look a few weeks or months into the future. By tracing the evolution of indices across time, we can better understand their significance. You don't need to know how much $2 will buy you one British pound, but it could be helpful to know how much it has risen against the dollar in recent years.
Weekly Data Reports That Offer Insight
The Welfare Benefits Weekly Claim Report is released by the Department of Labor every week. People will file for unemployment benefits more frequently in a weak economy. Using a four-week moving average is typical to smooth out the weekly volatility.
The Federal Reserve calculates the amount of money in circulation in an abstract technical manner and is published each month. With the advent of instantaneous global money transfers enabled by digital technology, this number has lost its meaning in the last decade.
Month-to-Month Data Summary
The Census Bureau and the Department of Housing and Urban Development jointly released a monthly report called "housing starts" (HUD). Permits issued, construction starts, and housing completions are all included in this report. Construction activity is a leading indicator since it tends to ramp up early in the expansion phase of the business cycle.
The National Association of Realtors publishes the Existing-Home Sales report.
This report focuses on demand, whereas the housing starts report focuses on supply. The housing sector's overall health can be assessed by combining these two metrics. Due to the time it takes to close a house sale, the data in this report is typically two months old. Mortgage interest rates and the cyclical nature of the real estate industry have a direct impact on consumer spending.
The Conference Board's Consumer Confidence Index (CCI) is a handful of studies examining the attitudes and perceptions of people in the marketplace. However, it's pretty accurate in forecasting consumer spending, which accounts for around 68% of the GDP.
Indicating Reports That Are Also Critical
To compile its findings, the Philadelphia Federal Reserve surveyed 500 of the nation's top purchasing managers at a representative sample of 5,000 manufacturing firms in Pennsylvania, New Jersey, and Delaware. The results were classified as "better," "about the same," or "worse" on numerous metrics.
Even though it has a small sample size, a confined geographic area, and an industrial concentration, it can predict the Purchasing Managers Index (PMI). The tiny sample size contributes to the month-to-month variation in the readings.
Supply Management Institute (ISM), previously the National Association of Purchasing Managers (NAPM), publishes the PMI, which measures purchasing performance.
Given its limited sample size and manufacturing emphasis, Wall Street closely monitors it because of its proven ability to forecast GDP growth (GDP).
Monthly, the Investment Company Institute publishes a statistic called Estimated Long-Term Mutual Fund Flows.
There are several reasons why this indication is frequently overlooked, including omitting individual stock purchases and sales and failing to distinguish between systematic investing and market timing actions. Many individual investors react to events by "buying high and selling low," which is a contrarian indicator. The Federal Reserve keeps track of money market fund inflows and outflows separately.
The Book of the Beige Color
The Federal Reserve releases the "Beige Book" (formally the Summary of Commentary on Current Economic Conditions by the Federal Reserve) eight times a year.
Each Fed's 12 districts contributes to the conversation given in the measured, non-committal language known as "Fed speak." Deciphering the report's meaning is akin to reading tea leaves for analysts and investors. Bond traders use a statistical metric nearly perfect for predicting the next meeting of the Federal Open Market Committee (FOMC), but the report foreshadows its activities.
The Verdict
Investors may get a sense of where the economy is headed by looking at leading economic indicators, which can help them design an investment strategy that will work in the future. However, leading indicators may not always be accurate. Thus reports should be viewed as a whole because each has its weaknesses and shortfalls.
