Economic indicators are macro economic data that is used to determine the general condition of a country’s economy. The economic indicators, in forex and binary options trading are used by traders in order to discern the health of an economy and forecast changes in the economic cycles. Economic indicators can have a big impact on the financial markets. To gauge the health of the economy and gain some insight into what could be in store for investments one needs to understand the various kinds of economic indicators.
At the outset, economic indicators can be categorized into leading, lagging and coincident indicators. All three economic indicators are valuable, but it is the leading economic indicators that are used more frequently on a daily basis. Leading economic indicators are keenly monitored by governments to determine interest rates and are followed by investors to predict their losses and profits in the stock market. Indicators are often read as complementary to each other because economic activities constantly interact.
Economic indicators are simply tools for gauging the economic environment for a country the overall strength of the stock market within the next coming months. An understanding of what the indicators have on the country and the stock market is important to navigate the financial markets. The economic indicators are followed by almost everyone in the financial markets including traders.
With so many people poised to react to the same information, economic indicators in general have tremendous potential to generate volume and to move prices in the markets.
Leading economic indicators are considered to be the predictors of economic trends. Examples of leading economic indicators include stock prices, building permits that reflect on the general state of housing and real estate, unemployment claims that focuses on the general state of affairs in the job markets and the consumer price index.
Lagging indicators come to the spotlight after the completion of the economic trends triggered by the leading indicators. Lagging indicators are used in retrospect or to validate other economic data. A typical example for lagging indicators include the average duration of unemployment, prime rates charged by banks and changes in labor costs per unit.
Coincident indicators on the other hand reflect the current condition of the economy. Indicators such as industrial production data, non agriculture payroll data and manufacturing trade data form the gist of coincident economic indicator.
The most reliable source of economic indicators are the ones that are published by government or non-profit organizations, such as the Conference Board, the Federal Reserve System, the Bureau of Labor Statistics, and other organizations. These organizations issue economic data periodically.
The most important economic indicators
- Consumer Confidence Index: This index is built upon a random sampling of a country’s citizens to gauge the overall mood of consumers in the country’s economy. Interest rates are partly determined by the results of the CCI. The random sample group is polled on their present income and the confidence that their income is going to increase in the near future.
- Unemployment report: Generated by the US dept. of labor, it measures the number of new jobs created or lost in the economy every month. This is an important indicator as it indicates the health of the economy. A growing economy always posts more job creation than losses. Read more about the ‘Non farm payroll‘ and how it affects trading.
- Gross Domestic Product: Known as the GDP, this report is published once every quarter and is an important report. It measures the value of services and goods in an economy and can have a major impact on the overall country’s economy
Economic indicators thus help in drawing a complete idea of country’s economy, it’s currency and characterizes it economic decline or expansion to the full extent. Economic indicators provide an opportunity to predict a trend of prices and a future situation at the foreign currency market. Trading with economic indicators will help traders to make more decisive trades while at the same time prepare them for any market volatility.