Economic indicators

Similar to the way that benchmarks can help you gauge the performance of your investments against the overall market, economic indicators can give you a sense of the broader economic outlook. Economic indicators are key statistics published monthly by The Conference Board. Changes in those numbers are used to forecast the direction of the economy — approaching downturns in particular. Key economic indicators include consumer confidence, the unemployment rate, the inflation rate, productivity rates, gross domestic product, and the balance of trade.

It can be a good reality check to evaluate the performance of the markets in light of these statistics. For example, if stock prices are soaring in the absence of comparable economic growth — as indicated by a substantial increase in gross domestic product, high productivity, low unemployment, and other indicators — chances are that these high prices may not be sustained. On the other hand, if stock prices are depressed while the economic indicators forecast positive economic news, the markets may be poised to bounce back.

Of course it's always risky to try to time your investment decisions based on economic forecasts, and historically the markets have rewarded long-term, buy-and-hold investors. But these statistics can help you gauge to what extent the markets may be undervalued or overvalued at any given time, and help you adjust your expectations accordingly.