Many of you might have heard about reports like Customer Price Index, Unemployment claim report, Personal Income and Spending report which come out every month. These reports are called economic indicators, bringing lots of data to shedslight on conditions which has impact over current economic condition and financial market. There are two types of this kind, leading indicators and trailing ones. Depending on type of indicator, it either gives assurance or prediction of the economic growth path.
Lately even an ordinary person is closely watching these reports to get idea on how we are doing as a country in different fronts, more importantly employment and customer sentiment towards the economy. Overall, we all waiting to hear some good news to flow in the markets both main street and wall street to pedal the country in the postive growth path. It is crucial for investors to keep track of these reports to make investment moves accordingly by considering different data points to predict the direction of the market.
This month magazine from TRoweprice has a good article which showed how certain reports gives indication on condition that impacts stock and bond market. Let me give some for example,
1. Employment Situation Summary – Published by Bureau of Labor Statistics which gives idea about the employment numbers around nation. Lower unemployment means higher stock prices and rising unemployment reduces market sentiment bringing stocks down. It’s other way around for bond as bond prices goes up on rising unemployment because lower interest rates by Fed to keep the economy going.
2. Consumer Price Index – Bureau of Labor Stasticis measures the cost of basket of consumer goods and services. It gives indication about the economy whether it’s in the inflation or deflation trend depending on the price index. This can help the Fed to tailor the future moves to drive the economy and Investors to make decision on their future investments.
In general these economic indicators are just a snapshot and shouldn’t be used soley to make any decision to alter your financial goals or portfolio. It should be one of many criterias which helps to make decision on your asset allocation to your portfolio.
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