How Understanding Economic Indicators Can Help Investors

A single data point can sway markets, but long-term trends are key.

A man looking through binoculars for an investment or opportunity on the horizon
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Dawal says the most important indicators are tied to what he calls the three legs of the spending stool: the individual, business, and government spending rates.

According to Dawal, the individual rate shows how consumers feel about their personal finances: The more optimistic they are, the more they'll spend. An increase in the government spending rate can boost the economy, while a decrease will serve as a drag. As for business spending, Dawal says, "If businesses are finding a reason to spend, that bodes well for future economic activity."

But Kirchenbauer cautions that even a long-term trend in positive economic indicators might not be enough to change the mood of the market. "Right now, the market is more often moving up or down on short-term concerns, worries, and unsubstantiated optimism or hopes," she says. "For most consumers, they need to … stay long-term and strategically focused on their goals and portfolio that will get them there with the least volatility."