Text 1c. Economic indicators that affect the u.S. Stock market

I. Read text 1 C. Pick up all the information concerning the present state of the U.S.A. GNP, jobs report, produce price indexes, and retail sales. Put the data into the table.

For investors, simply investigating a company’s cash flows, sales, debt loads and other vital statistics may not be enough to understand the firm’s outlook and future. Various outside influences have a big effect on your portfolios

returns - even if things are going swimmingly for your stock. Various economic indicators and forces could, and do, impact just how well your portfolio performs.

While a degree in economics isn’t necessary, understanding how these various economic measurements influence investment returns is a vital lesson for investors. Having knowledge of these basic concepts can mean the difference between big gains or a hefty portfolio loss.

Gross Domestic Product (gdp)

Commonly used as a general gauge of economic health for a nation, Gross Domestic Product, or GDP, can be a huge influence on your investment returns. Basically, GDP is the total amount of services and goods produced in a given country’s borders. This includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

As you would expect, this measurement of a nation’s economic health has a huge effect on stock market returns. Any significant change in GDP- up or down- usually has a significant effect on the direction of the stock market. For example, when an economy is healthy and growing, it is expected that businesses will report better earnings and growth. Obviously, these sorts of higher profits please investors of all stripes and will push them into equities. At the same time, lower GDP measurements can have the opposite effect on stock prices as businesses begin to suffer.

A prime example of this was during the recent Recession. As U.S. GDP fell and contracted, broad stock market indexes - like the SPDR 500 S&P - sank to decade lows.

Unemployment Rate/Jobs Report Another very strong indicator that affects the stock markets is the unemployment rate. Like GDP, rate of employment illustrates the development and the strength of the economy. The Jobs Report is reported monthly by the U.S. Bureau of Labor

Statistics and accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States. The statistic is used to assist government policy makers and economists in determining the current state of the economy and in predicting future levels of economic activity.

Investors follow this number closely as well. The Jobs Report and unemployment rates are critical measures of an economy’s overall health. Essentially, more people with jobs equates to higher economic output, retail sales, savings and corporate profits. As such, stocks generally rise or fall with good or bad employment reports, as investors digest the potential changes in these areas.