Investment Basics: Reading the Signs
October 23, 2017
By Colin OShea
When you’re on a road trip, a GPS can help you figure out where you’re going. But what if you want to know where the economy is headed? Since there’s no GPS for the economy, investors look at a variety of indicators to help them gauge its direction.
The Consumer Price Index (CPI) measures inflation by tracking changes in the prices of a variety of consumer items. It is compiled by the U.S. Bureau of Labor Statistics. Inflation causes the prices of items to increase over time, which could lower the purchasing power of your retirement savings. Long-term investors should consider choosing an investment mix that has the potential to outpace inflation.
The Producer Price Index (PPI) tracks changes in the selling prices received by U.S. producers of goods and services. Like the CPI, it’s compiled by the U.S. Bureau of Labor Statistics. Since this report measures price movement before the retail level, it helps predict which way consumer prices may be headed.
The Consumer Confidence Index (CCI) measures how confident Americans are feeling about current conditions and their economic future. The index is released monthly by the Conference Board, a nonprofit association. Confident consumers tend to spend more money, while consumers who are anxious about the future tend to spend less. Consumer spending affects corporate profits and may influence stock prices.
The Gross Domestic Product (GDP) measures the output of the nation’s economy. It is a broad indicator of the national economy’s overall health. Positive GDP growth generally means the economy is expanding. When the GDP declines, it generally indicates the economy is contracting.
Housing Starts (New Residential Construction) is a monthly measure of new construction activity in the private residential housing industry prepared by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. An increase in housing starts is a sign of economic growth. More houses being built means a rise in construction employment and a greater demand for furniture, home furnishings, and appliances. A decline in housing starts may indicate a slowing economy.
As you save and invest for your retirement, pay attention to economic indicators since they can help point out where the economy is going. Keep in mind, however, that you’re investing to meet long-term goals. Market reactions to economic indicators may be short-lived. Any decisions you make concerning your plan investments should be based on careful research and your investment time frame and risk tolerance. If you would like to review your investment plan, contact your Security National Bank Wealth Managment advisor