What Are Cyclical Economic Indicators?

Traders use cyclical economic indicators to make decisions.

The economy affects all things from jobs to investments and politics. Business conditions typically cycle between growth, recession, and recovery. Cyclical economic indicators highlight these patterns, so that business and government officials may plan accordingly.

Identification

The amounts of statistical data that may be described as cyclical economic indicators are limitless. Notable figures include unemployment percentages and stock market performance. Sales data from local retailers also track the economy.

Functions

Cyclical indicators either foreshadow or confirm the state of the overall economy. For example, decreasing mortgage loan applications predict future weakness within the housing market.

Considerations

You should combine various reference points together for lengthier time frames, prior to making conclusions. One-time, irregular readings may indicate statistical anomalies from a particular source.

Misconceptions

No perfect algorithm exists to predict and manage the economy. Rather, cyclical economic indicators should be used together as tools to make informed decisions.

Risks

The cause and effect relationship between the actual economy and its indicators is sometimes distorted--leading either to commercial euphoria, or further damage. Consumers may misread a short-term drop in the stock market as a signal of a weak economy. Consumers will then cut spending upon goods and unwittingly increase the chances for recession.

References

• Bureau of Labor Statistics
• S&P 500 Index
• Federal Reserve Bank of New York

Resources

• U.S. Department of the Treasury