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                                                Macro Economic Indicators

In addition to the general market indexes, there are several macro economic indicators that influence the market. Knowing how to read these indicators can help you measure the health of the economy. Here is a list and brief description of some of the most important.

Federal Reserve Discount Rate

This is the interest rate the Federal Reserve charges its member banks to borrow money. Changes in the discount rate represent changes in the cost of borrowing money. A cut in the discount rate encourages banks to borrow money, thereby increasing the money supply. A hike in the discount rate reduces the amount banks are willing to borrow, thereby reducing the money supply. Because money supply is directly related to inflation, the economic growth, and stock prices, you should be aware of the changes made in the discount rate and other Fed policy.

Employment Report

Usually released on the first Friday of every month, this government data includes the unemployment rate. A report that shows increasing employment is generally seen as bullish for the economy, but if the rate falls too low, the markets get jittery about inflation. It goes back to supply and demand. When the available labor pool shrinks, the cost of employing people will rise. Higher labor costs mean higher costs of production, which mean higher inflation. Higher inflation means higher interest rates, and higher interest rates are generally bad for stocks. IBD provides coverage of the employment report when it is released.

Retail Sales

Released monthly by the Commerce Department, the retail sales figures assess the strength of the consumer sector by measuring sales at the retail store level. This data is also used as a measure of the strength of the entire economy. The Federal Reserve would see a lower-than-expected retail sales figure as indicating a weak economy, which could then lead to an easing of interest rates. The monthly retail sales figures are published each month in IBD.

Housing Starts

The number of new housing starts is another measure of overall economic health. This figure measures the number of new building permits issued by local governments. An increased number of new housing starts indicate a strong and growing economy. However, if the number of housing starts is much larger than expected, the markets may see this as a sign of an overheated economy down the road, which may follow with the Federal Reserve raising rates. Of course, you will be able to read all about housing starts data as it becomes available in IBD.

Consumer Price Index (CPI)

The Consumer Puce Index (CPI) is a measure of the average change in the prices paid by consumers for a fixed quantity of goods and services. The Fed keeps a close eye on this figure and uses it as a prime measure if inflationary pressure on the economy. If the CPI's value increases substantially over a period of time, the Fed will likely move to tighten the money supply.

Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) is the broadest measure of economic activity and is defined as the output of all goods and services produced by labor and property located in the United States. GDP is important because it is the most detailed indicator, encompassing both income and spending, durable and non durable goods, construction and services. Real (adjusted for inflation) GDP's importance resides in comparing current data with past years. This comparison provides another picture on the health of the economy. IBD provides you with expert explanations and commentary on GDP data when it is released.

A few more notable economic indicators to watch are:

The Producer Price Index (PPI)

The Producer Price Index (PPI) measures the average changes in wholesale prices. It is considered the precursor to the CPI.

Purchasing Managers Index composite index

Purchasing Managers Index composite index, which measures a group of firms' manufacturing activity, and compares it to previous months.

Composite Index of Leading Economic Indicators

Composite Index of Leading Economic Indicators is a broad sample of several indicators designed to predict turning points in the economy. If the index is down 3 or 4 consecutive months economists view this as a signal for recession.