Charts and Markets
How Macro Economics Helps:
At InSight, we believe that intelligent investing starts with a deep understanding of the forces shaping the broader economy. While no single data point tells the whole story, a carefully curated set of macroeconomic indicators provides critical signals that help us anticipate shifts in market momentum, inflation pressure, interest rate policy, and risk appetite.
From employment trends to inflation data, consumer behavior to business activity, each release adds context to the economic narrative — and helps us position portfolios accordingly. Our investment committee continuously monitors a set of ten high-impact indicators that have historically proven most predictive for both short-term volatility and long-term asset class performance.
These indicators don’t just reflect the present — they often foreshadow what’s ahead. By analyzing how these variables move individually and in relation to one another, we can gauge where we are in the economic cycle, anticipate Federal Reserve action, assess recession risk, and adjust allocations to capitalize on opportunities or guard against downside.
InSight uses these tools to:
Forecast the direction of equity and bond markets
Guide tactical tilts in portfolio models
Evaluate credit conditions and liquidity risks
Identify sectors likely to benefit or underperform
Stay ahead of inflection points in the economic cycle
11 Most Important Marco Economic Indicators and How InSight Uses them:
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Data Point
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What it tells us at InSight:
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Our Read
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The Consumer Price Index (CPI) is a key measure of inflation that significantly impacts both financial planning and market performance. When CPI data shows rising inflation, it signals increased costs for goods and services, prompting the Federal Reserve to consider raising interest rates to cool the economy. Higher rates typically reduce consumer spending and corporate profits, leading to downward pressure on equity markets. They also drive bond yields higher, which can cause existing bond prices to fall. For financial planners, CPI trends influence assumptions about purchasing power, portfolio allocations, and retirement income needs, making it a critical input when designing strategies to preserve wealth and manage long-term risk.
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The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, plays a central role in shaping monetary policy and financial planning. Unlike CPI, PCE captures a broader range of spending and adjusts for changes in consumer behavior, making it a more comprehensive measure of underlying inflation trends. Because it closely aligns with the Fed’s 2% inflation target, shifts in the PCE directly influence interest rate projections and policy decisions. For investors and financial planners, monitoring PCE is essential, as rising readings can lead to tighter monetary policy, affecting borrowing costs, asset valuations, and long-term assumptions around growth, inflation, and income planning.
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The Jobs Report, Non-Farm Payrolls, is a vital indicator of labor market health and broader economic momentum. A strong report—marked by robust job growth and low unemployment—typically signals economic strength, increased consumer spending, and business confidence. However, it can also raise concerns about overheating and inflation, prompting the Federal Reserve to tighten monetary policy by raising interest rates. Conversely, a weak jobs report may ease rate hike fears but heightens concerns about slowing growth or an impending recession. For financial planners and investors, this report helps gauge the direction of interest rates, economic resilience, and potential shifts in market sentiment that can impact portfolios and long-term planning assumptions.
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The Unemployment Rate is a closely watched metric that reflects the percentage of the labor force actively seeking but unable to find work. A low unemployment rate typically indicates a strong economy with high consumer confidence and spending, but it can also signal tight labor markets, which may contribute to wage inflation and pressure the Federal Reserve to raise interest rates. On the other hand, a rising unemployment rate suggests economic weakness, potential declines in income and spending, and growing recession risk. For financial planners, shifts in the unemployment rate influence assumptions about job stability, income growth, and the appropriate level of risk in a client’s financial strategy.
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The GDP Growth Rate, particularly Real GDP, measures the overall economic output adjusted for inflation and is a key indicator of the economy’s health and trajectory. Strong GDP growth reflects expanding economic activity, rising corporate earnings, and increasing consumer demand—all of which generally support higher equity valuations and long-term investment confidence. However, rapid growth can also raise inflation concerns, prompting tighter monetary policy. Conversely, slowing or negative GDP growth may signal a recession, leading to market volatility and more cautious financial planning. For investors and planners, real GDP trends help guide decisions around asset allocation, risk tolerance, and expectations for future returns and income growth.
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The ISM Manufacturing and Services Purchasing Managers’ Indexes (PMIs) are forward-looking indicators that gauge the health of two major sectors of the U.S. economy. Readings above 50 signal expansion, while those below 50 indicate contraction. A rising Manufacturing PMI suggests increased production, new orders, and employment in the industrial sector, often reflecting strong economic momentum. Similarly, the Services PMI captures trends in the larger, consumer-driven part of the economy. Together, they offer early insight into economic turning points and inflationary pressures. For markets and financial planners, these reports help anticipate shifts in growth, interest rates, and business cycles—informing portfolio positioning, risk assessments, and strategic financial decisions. Ask ChatGPT
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The Consumer Confidence Index (CCI) measures how optimistic or pessimistic consumers feel about their financial situation and the broader economy. High consumer confidence typically signals strong future spending, which drives economic growth and supports corporate earnings—positive for equities and business investment. Low confidence, on the other hand, suggests caution among households, potentially leading to reduced consumption, slower growth, and heightened recession risk. For financial planners and investors, the CCI provides valuable insight into consumer behavior trends that influence economic momentum, market sentiment, and planning assumptions around income, employment, and discretionary spending.
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Retail Sales is a key indicator of consumer spending, which makes up a significant portion of U.S. economic activity. Strong retail sales suggest healthy demand and economic expansion, often boosting investor confidence and supporting corporate revenue growth—especially in consumer-facing sectors. However, rapid increases may also raise concerns about inflation, prompting tighter monetary policy. Weak or declining retail sales can signal waning consumer confidence and potential economic slowdown. For financial planners and investors, retail sales data helps assess the strength of the consumer economy, shape expectations for market performance, and guide decisions around sector exposure and income planning.
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The 2-10 yield spread—the difference between the yields on the 2-year and 10-year U.S. Treasury bonds—is a widely followed indicator of investor sentiment and future economic expectations. Normally, long-term rates (10-year) are higher than short-term rates (2-year), reflecting the time value of money. When the spread narrows or inverts (short-term rates exceed long-term), it signals concern about future economic growth and is often viewed as a precursor to a recession. An inverted yield curve has historically preceded most U.S. recessions. For financial planners and market participants, changes in the 2-10 spread help inform risk assessments, interest rate forecasts, and positioning across fixed income and equities.
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The Federal Reserve’s Dot Plot is a visual representation of where each member of the Federal Open Market Committee (FOMC) expects interest rates to be over the next few years. Released quarterly, the Dot Plot offers insight into the Fed’s future policy trajectory and market expectations for rate hikes or cuts. When the dots shift higher, it signals a more hawkish stance—typically in response to inflation concerns—which can put pressure on equities and raise bond yields. A lower dot trajectory suggests a more dovish outlook, supportive of risk assets. For financial planners and investors, the Dot Plot is a valuable tool for anticipating rate changes, adjusting asset allocation, and aligning strategies with evolving monetary policy.
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The federal funds rate is the benchmark interest rate set by the Federal Reserve for overnight lending between banks, and it serves as a foundational tool for U.S. monetary policy. Changes to the fed funds rate influence borrowing costs across the economy—from mortgages and credit cards to business loans—directly affecting consumer spending, corporate investment, and market valuations. When the Fed raises rates to combat inflation, it often leads to higher bond yields and lower equity valuations, especially in rate-sensitive sectors. Conversely, rate cuts can stimulate economic activity and boost asset prices. For financial planners and investors, the fed funds rate is a key driver of portfolio strategy, cash flow projections, and interest-sensitive investment decisions.
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5 More "Market Sensitive" Indicators
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Data Point
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What it tells us at InSight:
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Category
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Initial Jobless Claims track the number of people filing for unemployment benefits for the first time and serve as a timely indicator of labor market health. Rising claims suggest weakening employment conditions and potential economic slowdown, which can dampen consumer spending and investor confidence. Conversely, low or declining claims indicate a strong labor market, supporting economic growth and earnings stability. However, consistently low claims in a tight labor market can also contribute to wage inflation, influencing Fed policy decisions. For financial planners and investors, trends in jobless claims help gauge recession risks, adjust expectations for interest rates, and inform strategies around income stability and risk management.
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Durable Goods Orders measure new orders placed with manufacturers for goods expected to last at least three years, such as appliances, vehicles, and machinery. This indicator provides insight into business investment and consumer confidence, as rising orders often reflect optimism about future economic conditions. Strong durable goods data suggests expanding industrial activity and potential GDP growth, which can support equity markets—particularly in manufacturing and industrial sectors. However, unexpected declines may signal weakening demand and growing economic uncertainty. For financial planners and investors, durable goods trends help assess the business cycle, anticipate shifts in economic momentum, and inform sector-specific investment decisions.
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Housing Starts and Building Permits are key indicators of the health of the residential real estate market and broader economic momentum. Housing Starts measure the number of new residential construction projects that have begun, while Building Permits reflect future construction intentions. Rising numbers in both suggest strong demand, consumer confidence, and economic growth, often supporting related sectors like construction, materials, and home improvement. Conversely, declines may indicate weakening affordability, tighter credit conditions, or slowing economic activity. For financial planners and investors, these indicators provide insights into interest rate sensitivity, housing market trends, and the overall direction of the economy—impacting everything from mortgage planning to real estate exposure in portfolios.
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The Money Supply, particularly M2, tracks the total amount of liquid money in the economy, including cash, checking deposits, savings accounts, and other near-cash assets. Changes in M2 offer insight into monetary conditions and inflationary pressures. Rapid growth in M2 can signal loose monetary policy and fuel inflation, potentially leading the Federal Reserve to tighten interest rates—affecting borrowing costs and asset valuations. Conversely, a slowdown or contraction in M2 may reflect tighter financial conditions or reduced lending, raising concerns about economic growth. For financial planners and investors, trends in the money supply help anticipate shifts in inflation, interest rates, and liquidity—critical factors for portfolio construction, cash flow planning, and risk management.
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Corporate Earnings Growth is a key driver of stock market performance and a critical indicator of business health and economic momentum. Rising earnings typically reflect strong consumer demand, operational efficiency, and favorable economic conditions—all of which support higher equity valuations and investor confidence. Conversely, slowing or negative earnings growth can signal economic headwinds, margin pressure, or reduced spending, often leading to market volatility. For financial planners and investors, tracking earnings trends helps evaluate equity exposure, assess sector strength, and align portfolios with evolving market conditions and long-term return expectations. Earnings growth is also a foundational input in valuation models and forward-looking financial projections.
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