Economic Indicators – Source of Data to Boost Investment

Economic indicators are essential data for investors – providing the macroeconomic information needed to forecast market changes, highlight opportunities and make informed investment decisions.

It is not easy to follow economic indicators unless you have experience or an interest in data analysis. One of the problems is that most publications and sources are provided as raw data without context.

Nonetheless, understanding these raw metrics can be a key asset in balancing investment portfolios.

It is nearly impossible for individual investors to gather the volume of statistics and data needed to report on indicators such as the Consumer Price Index (CPI), where government or organization submissions non-profit come into play.

Read on to find out how to find and use the data provided by economic indicators.

UK economic indicators explained

Indicators come in many shapes and sizes and refer to any report, data or information explaining what is happening in the economy.

Of course, this can change quickly, depending on various factors, at home and abroad.

The point is, an investor should have a decent idea of ​​economic conditions before making a judgment call on their position.

Some of the most reliable sources include:

Markets can move quickly when new reports on economic indicators come out, so it pays to stay ahead of the curve and ensure you have the information you need to react accordingly.

If you only have time to look at one set of indicators, try ONS, the official provider of independent statistics. The main categories to look at are:

Gross domestic product

GDP refers to the value of all goods and services produced in the UK. Changes in GDP reflect economic growth and advances in the five main sectors:

  • Agriculture
  • Production
  • Manufacturing
  • Services
  • Construction

The ONS produces three reports per quarter. The first is an estimate, the second is an updated forecast, and the third is a confirmed release that shows how GDP has evolved over the three months.

Employment statistics

Indicators compiled in employment statistics include:

  • Unemployment rate
  • Count of unemployment benefit claimants
  • Average income per week, person or household
  • The volume of job offers
  • Net changes in employment measures
  • Economic inactivity

Investors look at employment numbers as a contributing factor, predicting future interest rates, the strength of the economy in different sectors, and whether the economy is growing or contracting.

A low unemployment rate usually means that interest rates will rise.

Therefore, the markets start to change according to the data – published monthly by the Labor Force Survey (LFS) analyzing employment levels in the UK on a three-month moving average.

Consumer price index

The consumer price index (CPI) and price index (PPI) have been in the spotlight over the past few months as traders watch the markets to assess the post-pandemic economic recovery, alongside the ‘inflation.

The monthly report examines a basket of products and average prices to show the evolution of consumer prices.

This measure of inflation shows monthly and annual adjustments, and the UK government uses it to monitor inflation targets, index pensions, and assess wages and benefits.

Commercial entry and exit

Each quarter, the ONS summarizes transactions between the UK and all other countries, with detailed information on:

  • Capital transfers
  • UK transactions in foreign assets
  • National liabilities and debt
  • Trade in goods and services
  • Nationwide trade revenue

‘Balance of payments’ data impacts the value of the pound sterling and shows UK assets as a percentage of GDP and compares the results with those of the European Union and countries further afield.

Average expenditure per household

Household spending is another macroeconomic indicator, providing insight into consumer spending, personal savings, economic output, and investment spending.

Every household contributes to the economy, so knowing how these average contributions are changing and the outcome of aggregate demand can highlight industries and sectors that present a profitable investment opportunity.

The ONS quarterly Consumer Trends report shows price and volume adjusted for inflation and reflects about 60% of spending that drives GDP.

retail activity

Retail sales metrics are produced monthly and show year-over-year and month-over-month changes.

The figures are compiled from monthly surveys of 5,000 retailers, including all businesses that employ at least 100 people in the retail sector.

Retail sales reports also take into account contributions to sales growth in the four main retail sectors:

  • Food: supermarkets, alcoholic beverages, tobacco and specialized food shops.
  • Non-food: clothing, footwear, household appliances, textiles and department stores.
  • Non-store retail: online, catalog and mail order retail.
  • Automotive fuel: service stations.

Production indices

The ONS report on the UK’s Production Index considers economic indicators that account for more than 15% of GDP as an early indicator of growth.

Production metrics measure production in the areas of energy and water supply, mining, manufacturing, and waste management.

Each index value is measured relative to the 2015 value, so a value of 115 means that production was 15% higher than the value seven years ago.

Consumer Confidence Surveys

Research organization Growth from Knowledge provides sentiment surveys which give insights into what consumers think of the economy in the UK and Europe.

Indicators above zero show a positive outlook, and vice versa for negative indicators, analyzing members across the UK and EU to study four key indicators:

  • Economic forecasts
  • Revenue expectations
  • Willingness to spend
  • The consumer climate

The Halifax House Price Index

Property accounts for a large share of UK investment capital and investors use the Halifax House Price Index as it is the oldest price series, including data from 1983 to present.

The data has an impact on standardized house prices and annual variations are calculated every three months to ignore short-term fluctuations.

Traders can use this index to track broader economic trends and potential changes in the real estate market as a whole, whether or not they have real estate investments in their portfolios.

Public sector debt and expenditure

National debt and spending may not seem like an immediate concern to investors, but it’s another crucial economic indicator.

Higher levels of public debt can impact institutional investors by tightening the availability of credit, while higher spending puts pressure on interest rates and levels of private investment.

The NSO Public sector finance The bulletin includes data on spending, investment, borrowing and debt, allowing traders to independently assess government fiscal activity.

Economic Indicators – Finding the Data to Boost Investment FAQ

How do investors use economic indicators to make decisions?

Economic data requires analysis, but reports provide information that helps investors examine opportunities and adjust their portfolio. Statistics measure current economic conditions, forecast trends, and create technical chart patterns that traders refer to, derived from the price, volume, or demand for particular securities.

Why should investors follow economic indicators?

Macroeconomic data such as an analysis of GDP is key to understanding how industries and companies are performing, showing how capital markets can change direction. Without an understanding of the overall economic situation, an investor cannot make smart choices.

What is the most important economic indicator for investors?

While every economic indicator can provide valuable information, GDP is often the most crucial, especially for equity investors who rely on corporate earnings for returns. In effect, GDP shows what the economy is producing, whether it is growing or contracting, and forecasts growth rates in critical sectors.

How are relevant economic indicators changing for global investors?

Reviewing the main economic indicators of the UK market is suitable for anyone investing in UK companies. Yet global investors need to apply the same analysis and research on a broader scale.

GDP and CPI remain relevant, but multiple data points predict economic changes by country to enable strategic portfolio adjustments. The US Federal Reserve publishes the beige bookdisplaying information about economic conditions.

You can access similar information from sources such as Bank of Japan and the European Central Bankdepending on the jurisdiction of your investment assets.

Investors also refer to the Purchasing Managers Index (PMI) produced by the Institute for Supply Management and the Markit group, which tracks financial markets to analyze demand.

Do I have to follow several economic indicators as a retail investor?

Yes, if you are a private investor, it remains essential to know how the economic conditions in which you are trading are likely to evolve in the months ahead.

Indicators have relative strengths and limitations in the information available, so the best approach is to use as many indicators as possible in tandem to get an overview of the big picture.

Some investors refer to a few specific economic indicators that they know best (or that are most relevant).

Nevertheless, expert knowledge is useful for performing analysis and using information to tactical advantage.

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