A statistic is an economic indicator that can be used to predict future trends and measure the current state of affairs. These indicators are used by businesses, consumers, economists and government agencies to assess the current state of the economic system, forecast future trends, make investment and spending decisions and set fiscal policies.
Stock Market Key Indicators
They include the Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 Index (S&P 500), and the Nasdaq Composite Index. The Dow Jones Industrial Average, Standard & Poor’s 500 Index and Nasdaq composite index are the three main American stock indexes.
These indexes were created to show the state of the stock market or a particular sector from one day to the next. The indexes show whether the “markets” are going up or down, little by little or a great deal. Each index has a history, and its followers are financial professionals and media.
Stock indexes are a good indicator of investor confidence, and to a certain extent, the health overall economy. Using other indicators, we can track and forecast the future of the economy as well as its immediate past performance.
S&P 500
The S&P 500 Index consists of 500 stocks across all industries. It’s broad representation, and value-weighted, makes it a better gauge of the market as a unit. The weight of each component in the index is proportional to its value. 1
NASDAQ
The Nasdaq Composite Index is a tracking index that includes more than 3,000 Nasdaq Stock Exchange stocks. The Nasdaq Stock Exchange is a young exchange and therefore the Nasdaq Composite Index includes many smaller and larger companies, especially in the biotechnology and pharmaceutical industries.
Key Economic Indicators
The majority of other economic indicators come from government reports or surveys, which only make sense when viewed in the context over time. If an indicator shows a positive change compared to the previous month, then it is a sign that the economy is improving. If the indicator is lower than its previous position, then the economy is weakening.
Investors in specific sectors can benefit from other economic indicators, but they also give information on broader trends. Building permits and manufacturing orders, for instance, can show whether or not construction companies feel confident about economic growth to plan for new construction.
Gross Domestic Product
Gross domestic product (GDP) is the indicator that has been closely monitored over time. It measures the value of all goods produced and services provided in a given country. This reflects the total consumption in the public and private sector. Quarterly and annual GDP reports are released. The US GDP at the end 2023 will be $27.36 trillion.
To measure the strength of an economy and to predict future trends, economists use the total value of GDP as well as its percent change over time, and the GDP in relation to the deficit national.
Consumer Price Index
CPI measures the cost of living by tracking a mix of consumer goods and service prices. The CPI is a measure of how the price of a basket containing goods and services has changed over time. This reflects inflation and the cost of living.
The CPI measures average costs of:
- Food and beverage
- Housing
- Transport
- Apparel
- Medical care
- Education
- Enjoy the best of both worlds with our range of Recreational Activities
- Communication
- Personal Goods and Services (such as haircuts or funerals)
Non-Farm Payroll Report
The monthly nonfarm payroll reports track the health of job market by calculating the wages and hours of nonfarm workers. This excludes farmworkers, government workers, self-employed people, employees of non-profit organizations, and even employees of government agencies. This includes approximately 80% of U.S. workers who contribute to GDP. 6 Also included is the labor-force participation rate which shows what percentage of working-age people are actively employed.
Demystifying the Stock Market: A Beginner’s Guide
Leading Indicators vs. Lagging Indicators? Leading Indicators?
Indicators can be either lagging or leading indicators. Leading indicators are measures that change in advance of changes occurring within the economy. They can predict the direction in which the economy will be heading. Lagging indicators change in response to economic changes. They enable analysts to track over time the direction of an economy or a significant component of it.
Are Leading or Lagging Indicators More Important?
The leading indicators and the lagging indicator both have their importance, but they serve different purposes. Leading indicators are used to predict future trends. Leading indicators can alert governments or businesses about the need to make changes that will soften or prevent negative economic outcomes. Leading indicators, however, can be inaccurate or misleading. Lagging indicators confirm or show trends that already occurred, providing more actionable and concrete information to businesses, consumers and government policy.
The Bottom Line
Economic indicators can be used to predict or confirm current trends. Consumers and businesses use them to make spending and investment decisions, while governments set fiscal policies.
The Dow Jones Industrial Average (DJIA), S&P 500 or NASDAQ are all large stock market indexes. Gross domestic product, nonfarm payroll, consumer price index and consumer confidence index are all key indicators of the economy.
ARTICLE SOURCES
- U.S. Securities and Exchange Commission. “Market Indices.”
- The Library of Congress. “Dow Jones Industrial Average First Published
