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5 economic indicators to watch

Highlights
  • Economists use indicators to look for signs of contraction or growth.
  • Consumer spending accounts for 70 percent of gross domestic product.
  • Temporary employment agency stats are an early indicator of recovery.

Most everyone is trying to get a handle on what's happening with the economy lately. The best way to do that is by looking at economic indicators, a compilation of statistics provided by various government agencies, such as the Census Bureau, the Bureau of Economic Analysis and the Bureau of Labor Statistics.

Economists and investors pore over this data like tea leaves, looking for signs of an economic recovery or slowdown, as the case may be.

The average person may be put off by the statistics, but below we demystify this esoteric information to make it more accessible. We focus on those indicators that measure what consumers are doing. After all, consumer spending accounts for 70 percent of all economic activity. It's the biggest chunk of gross domestic product, or GDP, which is the value of all goods and services produced in the U.S. That means it's watched very carefully.

Consumer-related indicators
  1. Personal income and outlays
  2. Retail sales
  3. Consumer price index
  4. New-home sales
  5. Employment

Personal income and outlays report

The personal income and outlays report is released about a month following the month surveyed, usually on the last day of the month or the first business day of the next month.

This report measures consumers' income and how much they are saving -- plus, how much they're spending and where they're spending it.

Negative changes in income can indicate that consumers are, or soon will be, spending less. When consumers don't spend, the economy suffers.

In general, high levels of income lead to strong spending, but other trends may be in play. The report can show increases in income with less spending or increases in spending with decreases in income -- obviously a bad sign.

The report tracks spending in some general areas, such as durable goods, nondurable goods and services.

The inclusion of services makes this an important report to follow. Services include such things as hair cuts, airline tickets and financial services.

"Depending on the month, services make up two-thirds of overall consumer spending, so it is a pretty big component," says Bernard Baumohl, author of "The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities."

The personal income and outlays report does come out later than other indicators, so it doesn't generate as much interest as reports released earlier in the reporting cycle, such as the retail sales report.

Retail sales

The retail sales report is released about two weeks after the month surveyed ends.

It measures all the retail sales for the month -- but not only to consumers. The report does include some nonconsumer elements.

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"Building supply stores sell primarily to contractors, not to consumers. Office superstores sell primarily to small business (and) some consumers, but in the retail sales data report they are fully included," says Scott Hoyt, senior director of consumer economics at Moody's Economy.com.

In comparison, the personal income and outlays report includes only consumer spending. The two reports are generally consistent with each other and corroborate findings.

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