The state of the nation's economy is a popular discussion thread among investors, economic experts, and politicians. To gauge it, they consider numerous data points called economic indicators. And whether or not those indicators point toward a healthy economy can have a direct impact on your personal finances - from the interest rates you earn on savings, to the ones you pay on debt, to the prices of goods and services.
To help you better understand economic indicators and use them to get a picture of national economic health, here's a quick overview of seven key indicators.
- Gross domestic product (GDP)
Typically viewed as the top indicator of our country's economic health, GDP is the value of all goods and services produced within the country.
- Gross national product (GNP)
GNP represents the value of all goods and services produced by U.S. residents and businesses, regardless of location. It's a good indicator of the economic health of American individuals and businesses, rather than the nation itself. GNP equals GDP plus net income earned from individuals' overseas investments, minus net income earned on U.S. investments by foreign residents.
- Consumer Confidence Index (CCI)
The CCI is literally a measurement of how confident consumers feel in the country's economy. It's based on factors such as consumer perceptions of current and expected employment conditions, business conditions, and income. A higher index figure indicates an optimistic mood, which often leads to more purchasing of goods and services.
- Consumer price index (CPI)
A good indicator of whether the economy is in inflation or deflation mode, the CPI is also used to demonstrate cost of living. It essentially looks at a group of consumer goods and services (including food, medical services, and transportation), calculates price changes for each item, and then averages them.
- Unemployment rate
This indicator is calculated by taking the number of people who are looking for employment, but can't find a job, and dividing it by the total number of people in the workforce. A lower rate is one sign of a healthy economy.
- Home sales
This is the number of homes that were sold (closed) in a month. The total is usually broken into sales of brand-new homes and sales of already built (existing) homes. Monthly sales released from the National Association of Realtors also include the average sale price. Higher sales figures are usually a positive economic indicator.
- Housing starts
This number reflects the number of homes that have begun construction in a month. Along with starts, the National Association of Home Builders also releases information on the number of building permits granted each month. When starts and permits rise, it indicates a healthy housing market, which likewise signals a healthy economy.
While these are a few key economic indicators, there are more. To keep tabs on the longer list, visit the Economics and Statistics Administration website.