We’ve heard a lot of talk about the economy lately. And that talk has increased as the latest unemployment data puts the new jobless rate at 10.2%. The news is that, even though the recession is technically over, there are still some very grim economic realities to deal with. Whether you are planning on investing in economic recovery, or just want to gauge the health of the economy, MoneyNing offers three economic indicators you should not overlook:
- Consumer Confidence Index: This measures how consumers feel about the economy. It is a measure of whether or not consumers feel confident enough about the way things are moving to increase their spending or make large purchases. About 2/3 of economic activity in the U.S. is based on consumer spending, so you can see how consumer confidence is an important indicator.
- Consumer Price Index: This is a measure of inflation. It keeps track of a basket of regularly purchased goods, such as clothing, groceries and more. You will often see a couple of different numbers, since there is often an overall number, and then a number with volatile energy prices taken out. Rising prices mean that inflation has entered the economy. In most cases, inflation is a sign of economic expansion and growth. However, too much inflation, too quickly can actually stymie economic growth and spook the markets.
- Treasury Yield: This is a little more subtle economic indicator. However, it does have its uses. You can gauge investor sentiment with help from the Treasury yield. This is the rate that bond buyers accept when they invest in government bonds. (Note: Yield moves inversely to price.) When yields are low, it means that Treasuries are in high demand, and the government can get away with paying less interest. It also means that, since Treasuries are in demand, riskier investments like stocks are out of favor. Investors are turning to the relative safety of government bonds — which are backed by the world’s most reliable taxpayer base.
In the end, you can make more informed investment decisions, and get a better feel for the economy if you look to economic indicators and adjust accordingly.
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