Important economic indicators

From "Secrets of Economic Indicators...""
Coming up this week: employment situation and ISM.

Correlation between weekly initial jobless claim and Dow

Weekly initial jobless claim has been showing great correlation with equity market. In the following graph, seasonal adjusted weekly initial jobless claim is plotted together with Dow jones industrial average index. For the most recent three years, the correlation between the two is about -0.93. A very good indicator for the market so far.

400K is a crucial level below which economists would think less possibility of recession. So far the level is high around 470K and the four week moving average is tilting up.  (data is updated till 8/26/2010)

Relationship between GDP % change and Dow Jones Industrial Average

I put quarterly US GDP change percentage together with Dow index. DOW's data is based on the second estimate dates of US GDP. For example, today the government released the second estimate of US GDP increase at 1.6% for Q2 from previous quarter. And the Dow closed at 10150.65. And keep in mind there are around 90 days between two data points.

The correlation is strong during 2008～2009 period. Right now US economy starts to show sign of slowing down economy. It will be interesting to see how the equity market perform in the following quarters.