The Top 11 Economic Indicators Traders Need to Know
Traders are obsessed with economic indicators and data.
Why?
Because economic numbers move stock prices, commodities prices, options prices, interest rates, and just about everything else you can think of.
So it’s a good thing the government is always giving us a fix!
But which ones should you pay most attention to as a trader?
Here’s a breakdown of the top 11 indicators that traders like you need to know about.
11. Homebuilder Sentiment
- From the National Association of Homebuilders
- Released at 8:30 a.m. ET in the third week of the month
- Measures builder confidence about current and future market conditions
To judge Homebuilder Sentiment, The National Association of Homebuilders conducts a monthly survey of its members in partnership with Wells Fargo.
The survey asks NAHB members to rate market conditions based on their personal experience.
The questions are centered around the current state of the market, conditions 6 months from now, and the traffic of prospective buyers.
Builders are asked to rank current and future sales conditions as “good”, “fair”, or “poor”.
Prospective buyers are rated as “high to very high”, “average”, or “low to very low”.
NAHB seasonally adjusted the number of responses in each category, “Good/High” or “Poor/Low”
They then use this formula: (Good/High – Poor/Low + 100), to calculate the monthly index on a scale from 0 to 100.
If every response was Good/High then the index will be 100. If all responses were Poor/Low it would be 0.
Readings above 50 are considered positive.
This index is a leading indicator for future home construction, since it is based on future expectations.
The market uses this report to gauge how builders themselves are feeling about their future.
NAHB has conducted the monthly survey since January 1985.
10. New Home Sales, Starts & Building Permits
- From the U.S. Census Bureau
- Housing Starts and Building Permits report released on the 12th workday of the month at 8:30 a.m. ET
- New Residential Sales report released on the 17th workday of the month at 10:00 a.m. ET
- Measures pace of new home construction and sales of newly built homes
Housing starts measure how many new homes builders broke ground on each month. It’s a lagging indicator because it measures past activity.
Building permits measure how many new permits were approved to build homes in the months ahead, making it a leading indicator.
The numbers are reported together by the Census Bureau to measure the health of new home construction.
Housing starts and permits include both single-family homes and multi-family buildings.
The Census Bureau also reports new residential sales each month.
This is a measure of how many newly constructed homes were sold the previous month and is a lagging indicator.
The report includes sales data on both single-family homes and multi-family units.
The data is reported at a seasonally adjusted annualized rate in order to avoid large swings based on season.
The new residential sales report includes data on supply (how many units were for sale at the end of the month) as well as prices.
It also breaks down new homes by construction status: not started, under construction, or complete.
This group of reports gives the stock market a measure of the overall health of the new home market.
9. Existing & Pending Home Sales
- From the National Association of Realtors
- Existing Sales report released in the 3rd week of the month at 8:30 a.m. ET
- Pending Sales report printed in the 4th week of the month at 8:30 a.m. ET
- Measure of existing home sales closed in the previous month and number of contracts signed to purchase a home
The National Association of Realtors reports existing home sales around the 20th of each month.
This report measures the total number of closed sales in the previous month, making it a lagging indicator.
Sales are reported at a seasonally adjusted annualized rate, which means the numbers are smoothed out to eliminate the impact of seasonal changes.
Home sales are typically faster in summer and slower in winter.
The existing sales report also includes data on supply levels and home prices.
NAR reports pending home sales in the week after existing sales.
This report is a measurement of the number of contracts signed to purchase a home in the previous month.
Pending Home Sales are a leading indicator for the housing market.
This report typically impacts home building stocks directly.
8. Retail Sales
- From the U.S. Census Bureau
- Released mid-monthly at 8:30 a.m.
- Measure of consumer spending in the U.S.
The retail sales report measures the total amount U.S. consumers spend on goods and services per month in 13 categories:
- Motor vehicle & parts dealers
- Furniture & home furnishing retailers
- Electronics and appliances
- Building materials and gardening
- Food and beverage stores
- Health & personal care
- Gasoline
- Clothing and accessories
- Sporting goods, hobby, musical instruments, book store
- General merchandise
- Miscellaneous retailers
- Nonstore retailers (online)
- Food services and drinking places (restaurants and bars)
The monthly report includes a headline number, and retail sales excluding auto and gasoline sales.
Auto and gas numbers are considered volatile because prices rise and fall more often than other categories.
Each monthly report also includes revisions for the two months prior.
Retail sales is a lagging indicator, reporting data from the previous month.
The market will typically rise on a good retail sales report and fall with a bad one as it signals the strength of the consumer side of the economy.
7. GDP
- From the Bureau of Economic Analysis
- Released at 8:30 a.m. ET, typically on the last Thursday of the month
- Measures U.S. economic growth by quarter
GDP stands for Gross Domestic Product.
The Bureau of Economic Analysis reports GDP on a quarterly basis.
The advanced estimate for each quarter is typically released on the last Thursday of the first month following the conclusion of the quarter.
The first revision is then printed the following month and the final revision the month after that.
So for the first calendar quarter ending in March, you would get:
- The advance estimate on the last Thursday of April
- The first revision in May
- The final revision in June
GDP is a lagging indicator and is used to measure how quickly the economy is expanding or contracting.
GDP growth is calculated by adding together the value of goods and services produced, and then subtracting the costs to produce them.
Consumer spending is the largest component, accounting for two-thirds of total GDP.
The stock market often falls if GDP comes in lower than expected, as it signals a weak economy.
6. Personal Income and Outlays
- From the Bureau of Economic Analysis
- Released at 8:30 a.m. ET, typically on the last Friday of the month
- Measures incomes and consumer spending, includes PCE price index as a measure of inflation
BEA’s Personal Income and Outlays report includes several key pieces of economic data and is a lagging economic indicator.
Personal income is the sum of net earnings (wages, salaries, social security and other government benefits), transfer payments, dividends, interest, and rental income.
Incomes are compared to the previous month and year to determine the monthly and year-over-year rate of increase or decrease.
The report also includes the personal saving rate which is the amount Americans are saving of their disposable income.
Personal outlays measure how much U.S. consumers spend on durable and non-durable goods and services per month.
The report also includes the Personal Consumption Expenditures (PCE) price index, which measures inflation.
This index measures the change in price of consumer goods and services for all households and nonprofit institutions serving households in the U.S.
The Core PCE price index excludes food and energy prices and is the Federal Reserve’s preferred inflation gauge.
The Fed often refers to this as the PCE price deflator.
The PCE Index is the Fed’s preferred inflation measure and can give traders an idea of how the bank might move interest rates.
5. Producer Price Index
- From the Bureau of Labor Statistics
- Released at 8:30 a.m. ET around the 15th of each month
- Measures change in wholesale prices paid by sellers
The Producer Price Index is a leading indicator that can be used to predict future consumer inflation pressures.
The report measures the change in wholesale prices that sellers pay for goods and services on a monthly and annual basis.
Sellers typically pass those higher prices down to consumers in the future.
The PPI is the oldest U.S. government economic report, dating back to 1902. It was known as the Wholesale Price Index until 1978.
The market typically reacts poorly to high PPI readings because it signals high consumer inflation down the line.
4. Consumer Price Index
- From the Bureau of Labor Statistics
- Released at 8:30 a.m. ET around the 13th of each month
- Measures change in prices paid by consumers for goods and services
The Consumer Price Index is the most widely known inflation measure in the U.S.
It measures the change in out-of-pocket expenses for all urban households in the U.S. on a monthly and year-over-year basis.
It is a lagging indicator because it measures prices paid in the previous month.
The most important sectors for American consumers are food and energy prices.
The core CPI strips out those two sectors as they can see large swings due to supply and demand.
The core CPI is typically lower than the headline CPI number.
The report has the potential to greatly influence the market as inflation is part of the Fed’s criteria for where to set interest rates.
3. Weekly Jobless Claims
- From the Department of Labor
- Released at 8:30 a.m. ET every Thursday
- Measures number of new unemployment claims filed each week
The Labor Department releases a weekly estimate of the total number of new unemployment insurance claims filed each week.
The report is a measurement of layoffs, as employees are only eligible to file for unemployment after being let go by their employer.
The 4-week moving average of new claims adds the past 4 weeks together and averages them out. This is seen as a less volatile measurement.
The report also includes continuing claims, which run one week behind the new claims total.
Continuing claims are those who filed an initial claim and then were unemployed for another week and filed another claim for that week.
Weekly jobless claims are a leading indicator, tracking changes in the labor market as they happen.
Unemployment claims hit an all-time high in April 2020 as Covid lockdown orders forced many businesses to shut down.
The market uses weekly jobless claims as a weekly measure of the health of the labor market.
2. Private Employment Report
- From the ADP Research Institute in collaboration with Moody’s Analytics
- Released at 8:15 a.m. ET on the Wednesday before the Labor Department’s jobs report
- Measures the change in payroll size at U.S. private employers
The ADP National Employment Report is a measure of hiring in the private sector of the U.S. economy.
ADP is one of the largest payroll processing firms in the U.S.
The company analyzes their payroll data month to month in order to calculate the net gain or loss of jobs per month.
That data does not include government jobs.
The private-sector jobs report is a lagging indicator.
This report is released two days ahead of the official jobs report from the government each month.
The market uses it as a preview of what the official report will look like.
1. Monthly Jobs Report
- From the Department of Labor
- Released at 8:30 a.m. ET on the third Friday after the conclusion of the reference week
- Measures health of the U.S. labor market
Officially known as the Employment Situation Summary at the Labor Department, this is seen as the “official” jobs report each month.
The report is based on a survey conducted by the Labor Department in the week that includes the 12th of the month.
Based on that schedule, it typically comes out on the first Friday of the new month.
The jobs report is a lagging indicator.
The summary includes nonfarm payrolls – which measures hiring by U.S. employers – as well as the unemployment rate, labor force participation rate, and average wages.
Nonfarm payrolls includes all private employees and government employees in the U.S. except farm workers.
This is arguably the most important economic indicator for Wall Street each month.
A bad jobs report can directly cause the stock market to fall, as it signals less Americans are working and therefore less money is available for spending.
This report is also key for the Federal Reserve when it comes to interest rates as one part of their mandate is to maintain “maximum employment.”
What Do You Think?
So did we cover YOUR top economic indicator? What would you add or subtract from this list? Let us know in the comments!