The analysis essentials / 03
Economic indicators,
made understandable.
Learn what the big monthly reports measure, why markets react to surprises, and how to read the data without overreacting to a single release.
01 / Know the reports
Each report answers one question about the economy.
Economic indicators are statistics published on a regular schedule about jobs, prices, output, and spending. No single report tells the whole story. Read together, they show where the economy has been and offer clues about where it may be heading.
Jobs: are people working?
The monthly Employment Situation report from the Bureau of Labor Statistics (BLS) is the main read on the job market.
Its headline number, nonfarm payrolls, is the monthly change in jobs counted by a survey of employers. The report also includes the unemployment rate and average hourly earnings.
Weekly initial jobless claims from the Department of Labor count new filings for unemployment benefits. They arrive sooner but bounce around more from week to week.
Prices: how fast are they rising?
The Consumer Price Index (CPI) from BLS tracks the prices urban consumers pay for a basket of goods and services. Housing costs are its largest single piece.
The Producer Price Index (PPI) tracks the prices U.S. producers receive, earlier in the supply chain.
The PCE price index from the Bureau of Economic Analysis (BEA) is the measure behind the Federal Reserve’s 2% inflation goal.
Output: is the economy growing?
Gross domestic product (GDP) measures the value of the final goods and services produced in the U.S. BEA publishes it every quarter.
The ISM Manufacturing PMI is a quicker, monthly survey of purchasing managers. A reading above 50 generally signals that manufacturing is expanding; below 50, contracting.
Spending: are households buying?
Consumer spending makes up roughly two-thirds of U.S. GDP.
The Census Bureau’s monthly retail sales report tracks sales at stores, restaurants, and online retailers. The figures are not adjusted for inflation, so rising prices alone can lift them.
Surveys such as the Conference Board’s Consumer Confidence Index and the University of Michigan’s consumer sentiment index ask how people feel about their finances and the economy. Mood can shift before spending does.
Leading, coincident, lagging: what do they mean?
Economists sort indicators by timing. Leading indicators tend to change before the broader economy, such as jobless claims, new manufacturing orders, and building permits. Coincident indicators move along with it, such as payroll employment. Lagging indicators confirm a change afterward; the unemployment rate, for example, has often kept rising after a recession ended. These are tendencies, not guarantees.
Why are there two different jobs numbers?
They come from two surveys. Payrolls come from a survey of employers and count jobs. The unemployment rate comes from a survey of households and counts people. Payrolls leave out farm workers, the self-employed, and household workers, so the two surveys can point in different directions in any one month.
When do these reports come out?
The jobs report usually comes out on the first Friday of the month at 8:30 a.m. ET. Weekly jobless claims usually arrive on Thursdays at 8:30 a.m. ET. CPI, PPI, and GDP releases are also typically scheduled for 8:30 a.m. ET; other reports have different release times.
GDP arrives as an advance estimate about a month after each quarter ends, followed by two updated estimates as more data comes in. The ISM Manufacturing PMI is normally released on the first business day of the month at 10:00 a.m. ET.
Each agency publishes an official calendar: the BLS release calendar, the BEA release schedule, and the Census Bureau’s economic indicator calendar. Holidays can move the dates, and a lapse in government funding can delay reports.
Official calendars: BLS release calendar ↗ · BEA release schedule ↗ · Census indicator calendar ↗
02 / Read a release
Why surprises matter to markets.
Before a release, economists publish forecasts, and prices already reflect what investors expect. Markets often react to the gap between the actual number and those expectations, but the details inside the report and the broader economic backdrop shape how they react.
Same report. Three different surprises.
Fictional jobs report · forecast: +150,000 jobs
Choose what the report actually shows, and see how the story changes even though every number is “jobs added”:
In line with the forecast. The headline tells investors little they did not already expect, so attention usually shifts to the unemployment rate, wage growth, and revisions to earlier months.
The surprise is the gap
Illustrative figures, not real data. Market reactions vary with what investors were already focused on, and the same surprise can move prices differently at different times.
Know the forecast before you see the number.
Economic calendars list a consensus forecast, typically the median of economists’ estimates, next to each release. A strong number that everyone expected may barely move prices; a modest number that beats low expectations can move them a lot.
Read beyond the headline.
In a jobs report, check the unemployment rate, wage growth, and revisions to the previous two months. In a CPI report, compare headline with core inflation and see which categories drove the change. In GDP, see whether growth came from consumer spending or from swings in inventories and trade.
Judge the trend, not one month.
Single months are noisy. Compare several months, look at year-over-year changes alongside month-over-month ones, and expect earlier figures to be revised. One surprising report is a data point, not a turning point.
What is “core” inflation?
Core inflation leaves out food and energy prices because they swing sharply from month to month, which can hide the underlying trend. It does not mean food and energy are unimportant. Headline inflation, which includes them, is closer to what households actually pay.
What does “annualized” mean in a GDP report?
U.S. quarterly GDP growth is reported at an annual rate: the pace the economy would grow if that quarter’s rate continued for a full year. A 0.5% increase in one quarter is reported as about 2% annualized. It is a way to compare periods, not a forecast for the year.
Is there a jobs number that always counts as “strong”?
No fixed threshold works for every period. How many new jobs the economy needs each month to keep unemployment steady depends on population growth, immigration, and how many people are working or looking for work, and all of these change over time. Comparing a report with the forecast and the recent trend is more useful than a rule of thumb.
Why do the numbers get revised?
First estimates are built from incomplete data. BLS revises monthly payroll figures in each of the next two reports and again in an annual benchmark. BEA updates each quarter’s GDP estimate twice, then again in later annual updates. Revisions can change the picture, so the first number is not the final word.
Learn more: BLS: CPI questions and answers ↗ · BEA: what to know about GDP ↗
03 / Connect to markets
Interest-rate expectations link the data to prices.
The Federal Reserve aims for maximum employment and stable prices, which it defines as 2% inflation over time, measured by the PCE price index. Data that changes the outlook for those goals changes what investors expect from interest rates, and that ripples into bonds, stocks, and the dollar.
Bonds often react first.
Treasury yields shift as expectations for the Fed’s path change. Data pointing to hotter inflation or a stronger job market can push yields up; weaker data can pull them down. Bond prices move in the opposite direction to yields.
Stocks weigh growth against rates.
Stronger data can mean better sales and profits, but it can also mean interest rates stay higher for longer. Which effect dominates depends on what investors are most worried about at the time, which is why “good news” for the economy sometimes pushes stocks down.
Sectors respond differently.
Rate-sensitive areas such as utilities and real estate often react strongly to changes in yields. Cyclical sectors such as industrials and consumer discretionary are more tied to growth, while consumer staples and health care are often seen as defensive. These are tendencies that break down regularly, not rules.
Is a recession two quarters of falling GDP?
That is a popular rule of thumb, not the official definition. In the U.S., a committee of the National Bureau of Economic Research (NBER) dates recessions. It looks for a significant decline in activity that spreads across the economy and lasts more than a few months, using many indicators beyond GDP, and it usually announces its decision months after the fact.
Does strong U.S. data always lift the dollar?
Not always. Strong data often supports the dollar when it raises expected U.S. interest rates relative to other countries, but global events, other central banks, and demand for safe assets also move currencies.
Should I trade around release times?
That is a personal decision, but know the conditions. Prices can jump within seconds of a release, spreads can widen, and orders may fill at worse prices than expected. Many long-term investors do not change their plans because of a single report.
Keep learning
Sources: Federal Reserve: why 2% inflation ↗ · NBER: how recessions are dated ↗