3 Economic Indicators Every Investor Should Watch

By: Wayne Duggan

The S&P 500 has taken a breather from making new highs in recent weeks after a strong start to 2021. The additional upside or potential downside in stock prices from this point forward will be determined by how well the U.S. economy can continue to recover from the pandemic.

Here are three critical economic metrics every investor needs to monitor in the coming months.

1. Gross Domestic Product Growth
In March, the Federal Reserve raised its 2021 U.S. gross domestic product (GDP) growth projection to 6.5%, up from just 4.2% in December 2020. In April, the Commerce Department reported U.S. GDP growth in Q1 was slightly below that figure, at 6.4%.

It’s important for investors to remember that the next several quarters of GDP growth will be extremely high relative to historical norms. The economy was literally shut down during the worst of the pandemic last year. Headline growth numbers above 6% may seem impressive at first glance, but investors should focus on how GDP growth stacks up against the Federal Reserve forecast and whether that forecast changes in the coming months.

2. Employment
Investors should also pay close attention to monthly and weekly employment updates. Weekly U.S. jobs reports come out on Thursday mornings, and monthly reports come out on the first Friday of each month.

In April, the U.S. economy added 266,000 jobs. That number may seem like a step in the right direction, but it was a sharp drop from the 770,000 jobs the economy added in March.

The extremely low April jobs number will make the May jobs report even more critical. Another low number could be a sign that the labor market recovery is stalling out or that the Pandemic Emergency Unemployment Compensation is incentivizing workers to stay home. At the same time, a better-than-expected May number (and an upward revision of April’s number) could suggest that April was simply an outlier and can be mostly ignored.

3. Inflation
One of the most important numbers that have been weighing on the stock market in recent weeks is the consumer price index (CPI), a popular measure of inflation. The U.S. government has spent more than $6 trillion on economic stimulus since the beginning of 2020, and investors are rightfully concerned that all that money printing could trigger a major spike in goods prices.

In March, the Fed raised its 2021 personal consumption expenditure price index (PCE) inflation target from 1.8% to 2.4%. However, the Labor Department recently reported a 4.2% rise in CPI in April.

Out-of-control inflation could force interest rates sharply higher, which would typically be considered bad news for growth stocks and good news for banks.

The Fed has said it is content to let inflation rise above the 2% figure it has historically targeted, and that any inflation above that rate is likely temporary. The rub now becomes whether the market believes that this inflation really is a short-term trend, and if investors start to predict the Fed will soon raise rates.

Active Trading with Lightspeed
Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo or to open an account.

Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.

You may also be interested in...

The IPOX® Week, September 20th, 2021
Read More
Understanding the Basics of Option Pricing
Read More
4 Tips for Maximizing Trading Returns
Read More
The IPOX® Week, September 13th, 2021
Read More

Try the demo

Compare Platforms
Check the background of this firm on FINRA's BrokerCheck

Our website uses cookies to improve the performance of our site, to analyze the traffic to our site, and to personalize your experience of the site. You can control cookies through your browser settings. Please find more information on the cookies used on our site in our Privacy Policy. By clicking OK, you agree to allow us to collect information through cookies.

OK