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

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."