Analyzing Economic Indicators
Posted by Al Schiliro, Senior Investment Officer, Catalyst Corporate FCU on 12/28/2017

Economic reports and indicators provide measurements for evaluating the health of the economy, the latest business cycles and consumer behavior. Indicators provide, to some degree, insight into the economic health of the consumer.

Check out three of the most common economic indicators and what they can tell you:

1. Real Gross Domestic Product (GDP)

What is it?
Real GDP is the market value of all goods and services produced in a nation during a specific period. Real GDP measures a society's wealth by indicating how fast profits may grow and the expected return on capital. It’s a comprehensive way to gauge the health and well-being of an economy.

Why is it important? 
The Federal Reserve uses data, such as Real GDP and other related economic indicators, to adjust its monetary policy.

Where does the data come from? 
The U.S. Department of Commerce's Bureau of Economic Analysis releases the data quarterly, including any revisions, within the last 7-10 days of each month following the end of the quarter.

2. Consumer Price Index (CPI)

What is it?
The CPI measures changes in the prices paid for goods and services by urban consumers for the specified month. It’s essentially a measure of individuals' cost of living changes and provides a gauge of the inflation rate related to purchasing those goods and services.

Why is it important?
The CPI is probably the best indicator of inflation. Investors and financial institutions closely scrutinize it, because as inflation grows, probability increases that the Fed/FOMC may have to raise interest rates to slow the growth of inflation. 

Where does the data come from?
The U.S. Department of Labor's Bureau of Labor Statistics releases the national CPI – an average of all areas sampled monthly during the second or third week after the end of the measured month. CPIs for three specific metropolitan areas are also published monthly, while CPIs for other specific metropolitan regions are published every other month.


3. Producer Price Index (PPI)

What is it?
The PPI is a group of indexes that measures the changes in the selling price of goods and services received by U.S. producers over a period of time. Think of it as the wholesale-side equivalent to the CPI that measures changes in prices paid by consumers: The PPI captures price movements at the wholesale level, before price changes have bubbled up to the retail level.

Why is it important?
This index is timely, because it is the first inflation measure available each month. By watching crude prices, the first in the chain of production trends, one can sometimes spot inflation in the pipeline before it shows up in the CPI.

Where does the data come from?
The U.S. Department of Labor's Bureau of Labor Statistics releases the data monthly, during the second full week of the month following the reporting month.

Want to know more about more the power of economic indicators? Subscribe to Catalyst Corporate’s weekly Behind the Numbers newsletter, and see how the most current economic data and trends may affect your credit union.

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