Economic indicators might not be flashy, but they’re among the most powerful tools investors have. They’re consistently released, cover a wide range of economic activity, and best of all—they’re free. Whether it’s the Consumer Price Index (CPI) or the Federal Reserve’s Beige Book, these resources give investors a clearer picture of the economic landscape. Policymakers, especially those at the Fed, use these indicators to make key decisions about interest rates and the direction of the economy. Savvy investors would be wise to do the same.
What Exactly Is an Economic Indicator?
At its core, an economic indicator is any piece of data that helps explain what’s happening in the economy. The U.S. economy is incredibly complex, with countless moving parts. Trying to predict where it’s headed requires looking at many different variables, and economic indicators give us a structured way to do just that.
There are indicators that tell us what’s happening now (coincident indicators), what’s already happened (lagging indicators), and what might happen in the future (leading indicators). Each type adds context to the larger picture and helps investors make more informed decisions.
Using Indicators Together (and in Context)
Economic indicators are most helpful when you understand what they’re measuring and how they relate to one another. Using multiple reports together can provide a clearer view than relying on just one.
Take employment data, for example. Instead of only looking at the monthly jobs report, an investor might also study hours worked, wage growth, and nonfarm payrolls. Together, they provide a more complete sense of how strong—or weak—the labor market really is.
You might also compare rising retail sales with increases in personal spending, or check whether rising wages are reflected in higher personal income numbers. Looking for these connections helps validate trends and gives you more confidence in your investment decisions.
Tailoring Research to Your Needs
Different types of investors look for different things in economic reports. A retired couple living off pensions and bonds may care more about inflation and interest rates. A short-term trader might focus more on consumer sentiment or manufacturing data. Some investors like to deeply understand just a few indicators, while others prefer to know a little about all of them. Most fall somewhere in between.
It also helps to keep an eye on expectations. Knowing what analysts predict ahead of a report’s release adds valuable context. After the report drops, you can check news sources like the Associated Press or Reuters to see how the actual numbers compare to the forecasts.
If you work with an investment advisor, they’re likely already watching these indicators and may explain their impact during a meeting or in a newsletter.
Watching Inflation: A Key Concern for Many
Inflation is a major concern—especially for people investing in fixed-income assets. Rising prices can erode purchasing power, influence interest rates, and affect nearly every part of your portfolio.
Two of the most important indicators for inflation are the Producer Price Index (PPI) and the Consumer Price Index (CPI). Many investors use the PPI to try to anticipate what’s coming in the CPI. The logic is straightforward: if it’s costing producers more to make goods, they’re likely to pass some of those costs on to consumers.
Other inflation-related indicators include the money supply and the Employment Cost Index (ECI), which tracks changes in wages and benefits over time.
GDP: The Big Picture for Stock Investors
Gross Domestic Product (GDP) is arguably the most comprehensive economic indicator, and equity investors pay especially close attention to it. That’s because GDP reflects the total output of the economy—essentially, how much we’re producing and growing.
If GDP grows too quickly, it can stoke fears of inflation. Too slowly, and it might signal an impending recession. Many monthly indicators help estimate what GDP will look like before it’s officially released.
For example, capital goods shipments from the Factory Orders report are used to calculate business investment in GDP. Similarly, retail sales and current account balances contribute to the GDP figure. As these component indicators come out, they help analysts and investors fine-tune their GDP forecasts.
Even indicators that aren’t directly used in GDP calculations can offer valuable insights. Things like the Beige Book, the Purchasing Managers’ Index (PMI), and labor reports all help paint a more detailed picture of economic activity.
Timing Matters: When to Look at What
Some economic indicators gain extra attention simply because they’re released early in the month. The PMI report, for instance, usually comes out on the first business day of the month. That makes it one of the first peeks investors get into what just happened in the economy.
While it might not be the most detailed report, the PMI includes useful clues about employment, inventories, and overall business activity. Because the release calendar is consistent month to month, investors can plan to check in on key indicators regularly and adjust their strategy if necessary.
Monthly check-ins on economic indicators can help guide asset allocation decisions and keep your investment strategy aligned with the broader economic trends.
The Bottom Line
Economic indicators don’t come with an agenda or a sales pitch—they’re just data. But that data, when used wisely, can be incredibly powerful. By understanding what key indicators are measuring and how they relate to each other, investors can gain a better understanding of both the markets and the economy.
No single indicator will tell you whether to buy or sell, but combining them with your overall analysis can lead to smarter decisions. Whether you’re managing your own portfolio or working with a professional, keeping an eye on these numbers can give you the insight you need to stay a step ahead.
