It doesn’t take a genius to know that predicting the economy is like predicting the weather. Sure, we can make some solid guesses and provide a pretty reliable prediction for the short term. But anything beyond that is entirely at the whims of the winds of chance.
So how do you predict the economy and its potential impact on your investments? Your best bet is to do your due diligence and keep track of several important statistics. By compiling a list of figures, you can strengthen your investment choices and create indestructible wealth! Tracking the rates of GDP, Inflation, house sales, and the value of gold will all add to your ability to know where the money is flowing.
With that in mind, let’s look at a few indicators you can watch to gauge the economy. I think of these as a sort of financial weathervane. Without further ado, let’s dig in.
Gross Domestic Product
First of all, you can’t see the flow of the economy without taking a look at the good old GDP. When the market value of domestic goods and services grows, you know we’re going in the right direction—the more productive the economy, the bigger the gross domestic product. By keeping an eye on this very important figure, you can determine when the best time to buy has come around. If GDP is strong, it can be safe to expect some growth for our investments, meaning it’s a good time to buy stocks, cryptocurrencies, etc.
It takes a strong crew to run a ship, just as you need good employees to run a company. By keeping track of the employment rates, you can see just how good these company crews are. High rates of employment suggest a strong level of productivity and wealth. Higher rates of pay suggest strong company profits, while stable figures speak of longevity. However, if the number of unemployed starts to soar, it may be time to abandon ship.
Stable Exchange Rate
If the dollar is holding its value on the world stage, then so is the American economy. If the exchange rate is stable, then that means investment in our economy is strong. However, I should point out that this only applies if the rate is stable. Although an increase in the dollar’s value is a good thing overall, it shows that the economy is improving. Ideally, you want it to have already improved. This can be seen in the rate holding for several months, rather than only a few days or weeks. If the rate is stable, it’s less likely to change dramatically, making it a safer investment.
Consumer Price Index
The consumer price index (CPI) measures the prices of all goods and services provided to the average household. This figure is commonly used to measure the rate of inflation. As the rate of inflation rises, so too does the rate of interest. You can use this to help predict how the economy will turn. Also, you can capitalize on rising interest rates by investing in firms that do well in this situation—enterprises with large cash balances or healthcare and tech stock.
The Value of Gold
Everyone knows the importance of gold in the global economy. Even when a country’s economy crashes, you can always rely on the value of gold. However, the value of gold works differently for predicting the economy. When the value of gold is low, this indicates that the economy is strong. With no need to put all our hope on gold, its value will drop. Gold is the fallback currency for when others fail. If you see the value of gold rising sharply, there may be a drop coming. One of the mistakes in investments is riding the trend when it’s hot – resist the temptation, and you’re likely to find better entry points when things cool down.
A government’s fiscal deficit is a strong indicator of how well they have managed their country’s money. This deficit measures how much a country has had to borrow to cover the shortfalls created when taxes and GDP do not cover their spending. The larger this figure is, the less that country has to invest in others. This will result in a less economically stable appearance in the world market, attracting fewer investments.
The Price of Crude Oil
Crude oil is one of the planet’s most important resources. Since the dramatic fall in crude oil value in 2015, its price has been steadily increasing again. The more it increases, the more countries that export it stand to benefit. This has a knock-on effect on energy companies in countries that rely on this import. From here, it also affects every other industry that requires oil. In essence, the higher oil prices get, the more expensive it is to run most of the world. Keeping an eye on this figure will help you determine whether running costs are due to rise yet again or ease off a little.
This is one of the leading indicators for economic activity. A weak housing market means it’s not a good time to invest in real estate, as construction companies might struggle to sell off homes due to the reduction in homeowner wealth. On the flip side, a strong housing market indicates that real estate investments will deliver a better return than stocks and bonds.
When viewed together, these indicators will help create a roadmap. Use that roadmap to your advantage and start seeing where opportunities lie. Arming yourself with this forethought will aid you in knowing just when it’s best to invest your hard-earned money and where it’s best to hold.
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