Economic Indicators to Watch and Why: Here's a Primer on the Most Common and Vital Economic Indicators. Use It to Advise Clients on the Health of the Economy and the Strength of Their Investments

Journal of Accountancy, December 2005 | Go to article overview

Economic Indicators to Watch and Why: Here's a Primer on the Most Common and Vital Economic Indicators. Use It to Advise Clients on the Health of the Economy and the Strength of Their Investments


[] Gross Domestic Product (GDP). A way to gauge an economy's health, GDP represents the market value of all goods and services produced in a nation during a specific period. The Federal Reserve uses such information to adjust monetary policy, which includes raising and lowering interest rates (www.bea.gov).

[] Money Supply (M2). This figure represents the total of all the money a country has in circulation. The Fed uses it to assess economic conditions and to help alter monetary policy; economists use it to predict recessions and recoveries and expected changes in stock prices (www.federal reserve.gov/releases/h6).

[] Consumer Price Index (CPI). Essentially a measure of individuals' cost-of-living changes, the CPI measures fluctuations in prices paid for goods and services by urban households for a specified month, providing the best gauge of the inflation rate related to purchasing those goods and services. Changes in inflation can spur the Fed to change monetary policy (www.bis.gov/cpl/home.htm).

[] Producer Price Index (PPI). It measures the changes in selling prices of goods and services U.S. producers receive over a period of time. The PPI captures price movements at the wholesale level at three stages of production: crude, intermediate and finished goods. It's the first inflation measure available each month (www.bls.gov/ppl/home.htm).

[] Consumer Confidence Survey. This leading indicator of consumer spending gauges public confidence about the health of the U.S. economy. It's based on a random sampling of 5,000 people asked how they feel about business conditions, the labor market, consumer spending, economic growth and their employment and financial expectations six months into the future (www.consumerresearch center.org).

[] Current Employment Statistics (CES). These data on national employment, unemployment and wages and earnings across all nonagriculture industries are the earliest indicators of economic trends released each month. …

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