Managing a portfolio is like a battlefield commander waging war. What greatly affects the strategic and tactical battle plan is the quality and timeliness of gathered intelligence. The same can be said of economic indicators. They tell you the economic battlefield conditions and which way they are trending towards.
First, to better understand their usage, you must learn how they differ. There are three major distinguishing features:
- How it relates to the business cycle or the economy comes in three cyclic flavors:
- Procyclic means the indicator moves in the same direction of the economy.
- Countercyclic means the indicator moves in the opposite direction of the economy.
- Acyclic means the numbers are fairly useless and have no relation to the economy.
- Rate of Data Release Stats are released on a set schedule, GDP is quarterly, unemployment monthly, and indexes are immediate. Always know how fresh the numbers you are looking at are.
- Timing of indicators indicates their change in relation to the economy as a whole.
- Leading indicators will forecast what is to come.
- Lagged indicators will confirm what has happen by not shifting until a few quarters after the economy moves.
- Coincident indicators move at the current pace of the economy.
Now, various groups and agencies post various indicators, but I will give you the highlights.