• The Student Investor

Key Economic/Market Indicators and What They Mean

Written By William Meng

Data and information drive the world today, playing a key role for countless businesses and industries. This is particularly the case for the investment world in which major data points are analyzed and assimilated to assist in decision-making. Information that indicates the state of the economy and markets is invaluable for investors as strategies and positions change depending on the future outlook. For example, an investment portfolio when the economy is expected to grow will be dramatically different from a portfolio created to weather a recession.

Below are some of the most commonly followed market and economic indicators, followed by a brief explanation for each one. You may have heard of some of them in the financial news or on social media, but all of the numbers and terminology can be confusing and hard to understand. Hopefully this article can clear things up.

Key Points

● Key data such as GDP, employment, interest rates, and inflation act as indicators for markets and the economy.

● Such indicators are analyzed to create a picture of the economy - helping investors and policy-makers with their decision-making.

● Changes in the economic or market outlook can lead to significant changes in the way people invest.


Gross Domestic Product (GDP) is an important measurement of the economic activity of a country and is widely used to gauge the size and health of an economy. GDP measures the total value of goods and services produced within a country over a certain time period, typically on an annual or quarterly basis. Given the prevalence of the US Dollar, and to increase comparability between countries, GDP is commonly measured in US Dollars. To account for differences in population, GDP may be presented as GDP Per Capita, which is the GDP per person in a given country.

Quarterly or annual changes in GDP are referred to as the growth rate. An increasing GDP means that a country’s economy is growing, while a decrease means the economy is contracting. If the GDP decreases for two consecutive quarters, the economy is said to be in a recession.

According to the IMF, in 2021 the largest economy in the world is the United States, with a GDP of $22.9 trillion. A GDP of $16.9 trillion places the Chinese economy in second, which has seen a dramatic increase in economic growth over the past few decades. Canada had a GDP of $2.02 trillion in 2021.

Employment Figures

Employment is another important indicator to the health of an economy and to a further extent, society. There are multiple measurements that gauge employment and the labour market, including:

● The unemployment rate: The proportion of the labour force that is without a job. The labour force refers to the population of employed workers and unemployed workers who are actively looking for work. There are different variations to calculate the unemployment rate, but the main headline rate in the US sits at just 3.6% as of April 2022.

● Non-farm payrolls: A measure of the number of workers excluding farmworkers. The US economy added 428,000 last month (April 2022).

● Jobless claims: A statistic that counts the number of unemployed people filing to receive unemployment insurance benefits.

The headline unemployment rate in the U.S. over the past 50 years.


Over the course of months or years, one may notice an increasing cost of living. Whether it be higher prices at the grocery store, increasing energy bills, or higher rents, things seem to get more expensive with time. This is referred to as inflation.

The most commonly used value that measures the change in prices over time is the Consumer Price Index (CPI). The CPI gauges the prices of a “basket” of goods and services that make up the expenditures of a typical household. This includes housing, transportation, food, and medical care. Increases in the CPI over time make up the inflation rate, and if general prices were to decrease, this is known as deflation.

Currently as measured by the CPI, inflation in the US reached 8.5% in March from a year ago. In Canada, inflation is currently at 6.7 percent. This marks the highest inflation seen in decades in both the US and Canada.

Inflation rate in the U.S. in the past 20 years according to the CPI.

Canadian inflation rate (%) over the past 25 years as measured by the CPI.

The Overnight Rate

Commonly known as the Fed Funds Rate in the United States or the Policy Interest Rate by the Bank of Canada, it is the interest rate at which banks and other financial institutions lend to each other on a short-term or overnight basis. While it may seem insignificant, it is a key component of the financial systems and general economies of many countries. In fact, the US sees a daily trade volume worth $2-4 trillion in this short-term lending market.

Central banks regulate the overnight lending market to achieve a desired market interest rate, which acts as a key piece of their monetary policy. They do so by setting reserve requirements for banks and actively participating in the open market by buying or selling securities. When central banks raise interest rates, this is referred to as monetary tightening. When rates are lowered, there is monetary easing.

Investors should be aware of the significant impact that short-term interest rates and central bank policy have on markets and the economy. During times of economic stagnation and recession, central banks look to stimulate the economy through lower interest rates. This increases borrowing and lending, which encourages spending and investment, and eventually leads to economic growth. On the other hand, when the economy is very strong and reaches maximum employment, higher inflation typically follows and central banks will then raise interest rates in an attempt to “cool” the economy.

Given the high inflation today, central banks around the world have begun to raise rates. Both the Bank of Canada and Federal Reserve in the US recently raised rates by half a percent to around 1 percent - marking the largest rate hike in decades. However, it is worth noting that this is still far below the rate of inflation with US and Canadian CPI for March printing a rate of 8.5 and 6.7 percent respectively.

Fed funds target rate since 1950. Note the peak of over 19% in the 1980s and the hitting of near 0% after the 2008 financial crisis.

Bond Yields

Similar to short-term rates, yields on longer-term debt are also very important to watch as it can have a dramatic impact on markets and the economy. However, unlike short-term rates, long-term interest rates are typically not set by central banks and are instead set by the market through supply and demand forces. Investors and economists often focus on yields of US Treasuries, such as the US 10 year treasury note. The direction in which bond yields go can act as a strong leading indicator for the markets and the economy. Given the low-risk nature of government bonds, investors often go to bonds during recessions and downturns/volatility in the market. Conversely, investors may turn to riskier assets during periods of economic growth or other investments when there is higher inflation that will erode the wealth of bondholders. Today, debt markets such as the one for US Treasuries have seen one of the worst quarters in decades as they sell-off due to surging inflation.

Crude Oil

Oil and gas can be thought of as the blood that keeps the global economy going. Used in cars and trucks, ships and planes, to heat our homes and much more, it is a key piece of modern civilization. Almost every good in some way or another is made possible because of oil. Due to its importance, oil prices are watched very closely by investors, businesses, and policy-makers around the world. High oil prices can push up prices - leading to inflation which slows down economic growth as households and businesses spend an increasing amount of their incomes on energy. This was seen during the 1970s during the two oil crises in the Middle East. However, higher oil prices can sometimes benefit oil-producing nations as it increases revenues and profits for oil producers. This is the case for Canada, which is a major oil-producing country.

In 2020, crude oil prices made history by going negative as demand collapsed due to the pandemic. However, oil prices have increased dramatically since then and WTI crude oil reached a near-record high of over $130 in March 2022.


This shiny precious metal isn’t just good to look at. Although virtually no country uses it as money today, gold has been used as money for thousands of years by countless civilizations. Gold is still held by households, investors, and governments around the world as a safe haven asset due to its rarity and durability. Gold is often bought as a hedge against inflation, but it also serves as a barometer for economic and social instability.

Gold prices per ounce in USD since President Nixon went off the gold standard in 1971.

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