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Why would an investor, a homeowner or even a worker want to follow the economy? Why would you want to bother tracking the seemingly complicated news on economic indicators?

How the Economy Works An Investors Guide to Tracking the Economy has this to say:

“Understanding the health of the US economy is very important if we are to be better informed citizens and voters. Moreover, knowledge of the economy may influence a choice of careers or a change in jobs. Fluctuations in the economy affect the stability of a job. Understanding how the economy works also helps to make sound investment decisions.”

The focus of that statement is on the US economy and with its sheer size it can be important to people in any country. Of course, people outside the USA will want to follow there own countries economic indicators more heavily and those within the US would do well to also follow international economic indicators.

Buying a house, taking out a personal loan, changing jobs, purchasing a big ticket item like a car or major appliance are all decisions that might be impacted by changes in the economy.

There are three types of economic indicators.

1. Leading economic indicators forecast future economic growth or decline and are especially useful for planning and investing purposes.
2. Coincident economic indicators gauge current economic activity and are useful for short term corrections and adjustments in trading.
3. Lagging indicators move behind the general economy and are useful for evaluating the changing behavior of the other two types.

All the indicators have their place and an understanding of all three types is important for investors, homeowners and workers. Still the leading indicators are perhaps the most useful as they can help to predict future moves in the economy and markets. The Conference Board publishes a monthly index of leading economic indicators which combines ten major leading indicators into a single number that we can use to track the future of the economy.

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