5 Macroeconomic dangers every investor should know about

Introduction

Macroeconomic indicators can contain voluminous statistics containing detailed reports provided periodically by government agencies, NPO’s and publicly listed companies. They give measurements for evaluating the health of our economy, the latest prosperous business cycles, and how consumers are spending their income, and how they are generally faring overall.

However, there are a few specific macroeconomic indicators that contain principal data that can provide investors with a solid perspective of exactly how our economy is situated and how it might fare in the not-too-distant future.

In this article, we will identify and review five macroeconomic dangers that every investor should be aware of:

1. GDP – Gross Domestic Product

2. CPI – Consumer Price Index

3. Central Bank Reports

4. Employment Reports

5. Home Sales and Construction Reports

Gross Domestic Product

The Gross Domestic Product represents the final market value of all the goods and services that have been produced within a country, and during a specific time frame. GDP, typically studied across time, is among the most keenly watched data sources by the financial market sector, and investors.

Quite simply put, if the GDP increases and expands its goods and service offerings, then the country’s GDP will be symbolic of a growing and healthy economy. Likewise, a decrease in GDP along with a contraction of goods and services, strongly indicates a shrinking economy. Contracting and sharply decreasing GDP data – over time – is a sensible indicator of macroeconomic uncertainty.

Consumer Price Index

The Consumer Price Index measures inconsistencies in the prices of basic consumer goods and services that are typically purchased by everyday families. The index is an analytical evaluation produced by using prices from a sample of normal household items, that are periodically collected and reported.

Investors carefully watch trends with CPI prices for any sign of inflation. Rising inflation usually leads to higher interest rates, and lending is subsequently reduced. Deflation can often lead to lower interest rates and more conspicuous borrowing for consumer spending.

Central Bank Reports

A government’s Central Bank is responsible for formulating its monetary policy, and it can exercise important control over a country’s overall economy. Investors tend to listen attentively to what the central bankers publicly state for signs about the economic future.

Central bank economic reports are formally released and are readily accessible on their websites. And they contain valuable economic analysis and commentary about the current country’s economic position, and they usually indicate potential future monetary policies that might be worth consideration.

Employment Reports

A country’s GDP can arguably be linked to the country’s overall employment statistics. Key employment indicators, such as payroll, labor force numbers by sector, and unemployment figures, provide accurate assessments about how many people are employed, and whether their income has fluctuated since the previous reporting period.

Investors mindfully observe these employment indicators, especially those developed countries that produce a majority of their income from domestic consumer spending. Any sharp decrease in employment figures will often be accompanied by a decline in consumer spending. All of which will harm GDP data and statistics and provide a pessimistic outlook for overall economic growth prospects.

Home Sales and Home Building

Buying a family home represents a major purchasing decision for most people. The Department of Commerce produces a monthly report on brand new residential sales of homes, which is a good indicator of consumer house-buying sentiment. And the National Association of Realtors, which is a private association, creates a periodic report presenting the data on existing home sales, based on complete and closed sales, within discrete time frames.

Regarding the quantity of new houses being constructed, The Census Bureau of the Department of Commerce creates a monthly report on new residential construction activities, successful new permit applications, with the data reported by region. This report signifies the real estate developers’ faith levels in the current and short-term housing economy.

Conclusion

Investors can easily obtain crucial macroeconomic evidence that can provide accurate information that can support their investment decisions – all by using key macroeconomic economic indicators that are readily attainable. While no one indicator by itself can be considered pre-eminent, using several sources referred to in this article can provide investors with informed evidence about the state of the economy.

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