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The Only 2 Economic Indicators That Matter

Economic forecasts are hard to miss these days, but with so much conflicting information out there, how do you know which ones to trust? A lead sentence from a story on the front page of Saturday’s New York Times says: “Many professional forecasters are ... declaring that the worst may soon be over.”Meanwhile, the front page of the same day’s Wall Street Journal states: “...the U.S. recession will extend well into 2009.”

Here’s how to rectify all these conflicting forecasts: Remember that we’re not in the crystal ball business, as Carmen put it on Monday’s show. We – consumers – are actually ahead of the economic numbers. We knew the recession was here before it was official and we’ll likely feel the recovery before that is official.

That said, there are two economic indicators that are worth paying attention to at the expense of all others. According to Tyler Mathisen, CNBC’s managing editor of business news, the average consumer should be keeping an eye on the jobs numbers and interest rates – and that’s about all.

Employment numbers, including the monthly tally of jobs lost or gained, are crucial to understanding where the economy is headed. Specifically, it helps you understand your income security. Are companies in your industry hiring or firing? If they’re laying people off, it indicates that the worst is probably not yet over and you should be focused on job preservation and building an emergency fund. If it seems jobs are starting to appear, that’s a good indication the economic albatross is beginning to loosen.

Interest rates are similarly important indicators as they paint a detailed picture of where policymakers see the economy going. When interest rates come down, like they have recently, it shows that policymakers are not concerned with inflation and instead believe the economy needs stimulus. Lower interest rates translate to lower credit costs for consumers. Conversely, when interest rates go up, that’s an indication that policymakers are thinking about inflation. As we know, inflation takes a bite out of corporate earnings and thus stocks have a harder time making money for you when inflation is high. Inflation also means higher competition for your investment dollars all around.

Bottom line? You’ll just be chasing your tail if you worry about every economic forecast or indicator that you see on the news. Pay attention to the employment numbers and interest rates to get a good idea of where your personal economy stands amid the broader economic landscape.