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They are Supposed to Tell Us How the Economy is Doing, But Where Do Those "Economic Indicators" Come From?

We've all heard the news reports that supposedly tell us how the economy is doing – one month it's up, the other it's down – we tend to believe them. But why? For those of you who have asked that question, we thought we would shed a little light on some of the more popular indicators of our economy's health and well-being.

Where do those indicators get their data? And why does it matter? Read on and hopefully you'll understand why we pay attention to them in the first place. And why they are important benchmarks to follow.

We've just scratched the surface here, but you can read all of this, and more, in great detail in this article from Investopedia.

Economic Indicators : What Do They Mean?

The Consumer Confidence Index (CCI) is a monthly release featuring survey results of more than 5,000 households. It's designed to gauge the relative financial health, spending power and confidence of the average consumer.

The Consumer Price Index (CPI) is an inflation guide for the U.S. economy. It uses a "basket of goods" approach that aims to compare a consistent base of products from year to year, focusing on products that are bought and used by consumers on a daily basis. The price of your milk, eggs, toothpaste and haircut are all captured in the CPI.

The indicator we know as "housing starts" is really the New Residential Construction Report. This is issued monthly by the U.S. Census Bureau jointly with the U.S. Department of Housing and Urban Development (HUD). It uses data from homebuilders nationwide, and focuses on three sources: housing starts, building permits and housing completions. A housing start is defined as beginning the foundation of the home itself.

The Jobless Claims Report is a weekly release that shows the number of first-time (initial) filings for state jobless claims nationwide. Due to the short sample period, week-to-week results can be volatile, so reported results are most often headlined as a four-week moving average. It is also seasonally adjusted.

The Producer Price Index (PPI) is a weighted index of prices measured at the wholesale, or producer level. A monthly release from the Bureau of Labor Statistics (BLS), the PPI shows trends within the wholesale markets (the PPI was once called the Wholesale Price Index), manufacturing industries and commodities markets. All of the physical goods-producing industries that make up the U.S. economy are included, but imports are not.

Retail Sales is very closely watched by both economists and investors. This indicator tracks the dollar value of merchandise sold at retail stores and outlets by taking a sampling of companies engaged in the business of selling end products to consumers. Both fixed point-of-sale businesses and non-store retailers (such as mail catalogs and vending machines) are used in the data sample. Companies of all sizes are used in the survey, from Wal-Mart to independent, small-town businesses.

The release will contain two components: a total sales figure (and related % change from the previous month), and one called "ex-autos." That's due to the fact that the large ticket price and historical seasonality of auto sales can throw off the total Retail Sales figure disproportionately.

Ready to Learn More?

Find more information on Economic Indicators at Investopedia.

 

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