Why are these indicators so important to the general understanding of financial markets?

Indicators play a critical role in understanding what is happening in an economic system for a variety of reasons. If an economy is relatively transparent—if what is being reported actually did happen—at the most general level, we can observe what has just happened to the economy, and have more indications or proof as to what may happen next, an important factor when it comes to investing. But the assumption is that whatever investments we are tracking are in some way related or dependent on an economic indicator. Many money managers and investors react profoundly upon the release of some information, either by increasing positions in investments, selling positions in investments, or holding steady during the chaos created by the introduction of some indicative report.

How can I misinterpret an indicator?

When a report is released, it is naturally scrutinized and judged by all who read it. Some investment managers and individuals may review the same figures and draw completely different conclusions, based upon their own biases, trading rules, theories, or bets. A great example is the Quit Rate, or how many people voluntarily give up their jobs. On the surface, an increase in this rate—issued by the Bureau of Labor Statistics, and analyzed by dozens of other organizations—may appear bad, as more people may become unemployed. But it may also indicate some type of economic turnaround is occurring, as people may have more confidence in the economy to leave a job voluntarily in order to find another job. Although there is only one number released, it may be interpreted in many different ways.

What is the Conference Board, and why is it so important to the understanding of financial markets?

The Conference Board, a non-profit organization that releases authoritative research and reports on the state of our economy, began in 1916 as the National Industrial Conference Board. It is composed of members—often high-level managers of many of the largest corporations, as well as researchers, analysts, and writers—who regularly release statistics and analysis about the health of our economy. Often, Conference Board reports are indicative—and perhaps to many, predictive—as to where the economy is heading. It is thought to be one of the most important generators of economic reports and analysis, publishing such reports as the U.S. Consumer Confidence Index, Leading Economic Indexes, Employment Trends Index, Help Wanted OnLine, and the CEO Confidence Survey. It is widely followed by the investment community, and—depending on how the Conference Board report is interpreted—may have a profound effect on investing behavior in the short term.

 
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