Investing in the stock market requires immense of education and training, but anyone can make wise investment decisions by learning how to closely follow the economy. While an expertise in the economics is not necessarily required, a basic understanding of the twelve major economic indicators is beneficial to the novice investor. There are a few basic requirements in learning how to properly track the economy, but they all can be achieved with a little practice. These include learning how to view changes in the economy with a long-term perspective, acquiring access to the various financial presses, and studying a few available government data sources.

The list of economic indicators is a combination of individual business data, indexes, interest rate changes, and reports that all have a direct effect on the strength of the national economy. The importance of this information to the average investor cannot be stressed strongly enough because a flourishing economy leads to higher company profits, increased consumer spending, and lower unemployment rates. Each indicator provides data that can be used to acquire information related to the overall strength of a particular business or industry for investing purposes.

The Nonfarm Payroll Report (NFP) is a U.S. economic employment report released monthly by the U.S. Bureau of Labor Statistics. As the name suggests, the primary emphasis of this report is on major nonfarming sectors like the construction, government, manufacturing, mining, and service industries. Even the slightest of differences in this information than what is expected can directly affect the U.S. dollar, as well as the bond and stock markets. This data compares the difference in nonfarm payrolls from month to month, and is usually positively changed from $10,000 to $250,000 when the economy is doing well.

This information actually comes from two separate reports resulting from two national surveys (one establishment and one household), and provides an overview of such areas as the average number of hours worked and wages earned, total nonfarm payrolls, and the unemployment rate. Not only are these critical determinants of such monthly indicators as industrial production and personal income, but earning are followed closely as a potential indicator of future increases in inflation.

Another key area that needs to be considered are the interest rate changes that are put into place by the Federal Open Market Committee (FOMC) eight times each year. There is a positive relationship between the amount of funds invested and interest rates. Smart investors will invest more when interest rates rise, and spend morn when interest rates fall. In other words, always look for the best deal and highest possible profit margins.

The Retail Sales Report provided by the U.S. Census Bureau is followed very closely by economists and investors alike because of the above average volatility that it can cause in the stock market. The change in monthly retail sales is one of the best available tools used to analyze consumer spending patterns, but it does not account for monthly automobile sales due to potential monthly sharp increases and decreases in the industry. A sharp rise in retail sales may be viewed as a precursor to inflation, and decreased sales could potentially signal a recession in the near future. Investing patterns can be based on these patterns because interest rates and retail sales are also closely intertwined.

The Consumer Price Index (CPI) is measured monthly by the U.S. Bureau of Labor Statistics in order to assess the price level of a fixed market basket of goods and services purchased by consumers nationwide. The CPI is the nation’s most frequently cited inflation indicator, and is also used to calculate cost of living adjustments for government programs like social security. Large rises in the CPI typically denote periods of inflation, and large drops in the the CPI usually mark periods of deflation. Therefore, one would be wise to invest when the CPI is high and sell when it is low.

The Producer Price Index (PPI) prepared by the U.S. Bureau of Labor Statistics around the 11th of each month is a family of indexes that measures the average change in selling prices received by the domestic producers of goods as they change from crude materials to the finished product.They are used by economists as foreshadowing indicators of commodities that will later affect the prices of goods in the CPI. Because of its direct relation to the CPI, the wise investor would buy when the PPI increases and sell when it decreases.

The Consumer Confidence Index (CCI) is a monthly survey by the Conference Board that measures the degrees of optimism of optimism or pessimism of consumers with respect to the economy in the near future. At times, it is also helpful in predicting sudden shifts in consumer consumption patterns. The logic behind this index is that consumers tend to purchase more goods and services when they are feeling optimistic about the economy. Once again, a wise investor would buy when the CCI is low and sell when it is high.

The Michigan Consumer Sentiment Index (MCSI) conducted by the University of Michigan is a monthly telephone survey that is used to gather information on consumer expectations about the current status of the overall economy. This study looks into consumer spending patterns, and provides a general way for them to see how they correlate to corporate profits.

The Purchasing Managers Index (PMI)is published by the Institute for Supply Management on the first business day of each month, and is used to measure the economic health of the manufacturing sector. The PMI consists of five major components: new orders, inventory levels, production, supplier deliveries, and the employment environment. Businesses should try to maintain a PMI over 50, and investors should ALWAYS invest when it is above 50.

The Durable Goods Order Report is produced by the U.S. Census Bureau around the 25th of each month, and measures the dollar volume of orders, shipments, and unfilled orders of durable goods. Orders are considered to be a leading economic indicator of manufacturing activity, and are used by the investors to judge the strength of the sector. Therefore, they should regard this report in a similar manner as the PPI and PMI for stock purchase and selling purposes.

The Industrial Production Index (IPI) is prepared around the 15th of each month by the Federal Reserve, and measures the amount of output from the manufacturing, mining, electric, and gas industries. The IPI is used to judge the growth and production of these industries, and should be used in a similar fashion as the other indexes and reports.

The monthly national housing report is written by the U.S. Census Bureau around the 16th of each month, and is a benchmark by which the economy is judged. An increase in the number of building permits and housing usually occurs a few months after a reduction in mortgage rates.Investors in thee real estate market should always buy when the numbers are high, and sell when they are low.

Quarterly GDP reports are produced by the U.S. Bureau of Economic Analysis, and subsequent revisions are released in the second and third months of each quarter. It is commonly used as an indicator of the overall economic health of a country, and may be broken down into five different components. These are consumption, investment, net exports, government purchases, and inventories.

The best way for investors to analyze GDP is to review the data over a span of several years in order to get a better impression of the general series of time that is being studied. A recent history of high GDP is recommended before any international investment is seriously considered. While the foreign markets offer an excellent rate of return for experienced investors, they do need to still be approached with extreme caution due to high volatility.

In summary, even the most novice investors can learn to make wise decisions by studying the aforementioned economic indicators. While there are no guarantees where investing is concerned, each indicator provides data that can be used to make a purchasing decision. Smart investment decisions can be made by learning how to properly use this data, and this will cause the likelihood of success to be greatly increased.