How to Read Economic Indicators: Why You Should Look at the Gap, Not Just the Numbers

One night last month, when U.S. employment data was released, I found myself scrolling through Twitter (though everyone calls it X these days, the name still doesn’t roll off my tongue) until dawn.

As soon as the breaking news hit that non-farm payrolls had fallen short of expectations, articles flooded the feed with headlines like “Economic Slowdown Confirmed.” Yet, when the New York stock market opened the next day, it actually went up. The data was bad, but the market was smiling.

Wondering what kind of logic was at play, I searched for answers until I remembered a book I had bought ages ago and left sitting on my shelf.

It is “The Secrets of Economic Indicators” by Bernard Baumohl.

What kind of book is ‘The Secrets of Economic Indicators’?

This book, originally titled The Secrets of Economic Indicators, is a guide to economic indicators that has survived for nearly 20 years through multiple editions. The author, Bernard Baumohl, is a renowned expert in U.S. economic forecasting and remains a frequent face on networks like CNN and Bloomberg as the Chief Global Economist at The Economic Outlook Group. It was first introduced in Korea in 2010 through Lux Media, and a 3rd edition, updated by the author to reflect the latest global and U.S. indicators, was released in 2022.

Looking at the thickness of the book, it seems like a dry reference manual, but flipping through it, you realize its nature is quite different.

It is more of a dictionary that breaks down the definitions, release times, and points of sensitivity for over 60 economic indicators, ranging from familiar ones like GDP and CPI to the ISM Manufacturing Index and Consumer Confidence Index.

The chapter structure is also practical. It begins by explaining why economic indicators matter, moves on to how to interpret U.S. data, compares major indicators from Europe, China, and Japan, and finally discusses how the media and markets consume this data.

The Core of Interpreting Economic Indicators: The Gap Between Expectations and Reality

What I pondered most while reading this book wasn’t actually the explanation of individual indicators.

It was the part explaining why the market reacts to the “difference between the number and the forecast” rather than the “number itself."

Going back to the employment data example mentioned earlier:

If the actual release isn’t significantly far from the consensus the market had already formed, or if sub-items (like wage growth) come out in the direction the market wanted, stock prices can rise even if the headline number looks bad.

An indicator is just a single number, but the market is waiting for the announcement with that number already priced in. So, even if news reports shout about “poor employment,” what actually moved the market was likely not the absolute poorness of the indicator, but the relative relief that it was less bad than expected.

Knowing this changed the way I read economic news.

Before, I only looked at whether an indicator was “good or bad,” but now I start by checking, “What was the market expecting?” In reality, this must be obvious to people who use economic indicators in practice, but for the average reader, it is a structure that is impossible to discern just by looking at news headlines.

Then, who exactly sets those “expectations”?

Before reading the book, I vaguely thought they were targets set in advance by the government or the central bank, but that wasn’t the case.

The consensus is actually an average figure derived from surveys conducted by news agencies like Bloomberg or Reuters, sent to economists at various banks and research institutions. In other words, it is an expectation created by the market participants themselves, and the distance between that expectation and the actual release determines the timing of trades. That is why the book also introduces approaches to view volatility itself as an opportunity during weeks when non-farm payrolls, CPI, or PPI are released. It is closer to understanding and responding to the structure of volatility that occurs before and after the release, rather than trying to guess the indicator itself.

Leading, Coincident, and Lagging Indicators: What is the Difference?

It was also useful that the book didn’t just list indicators but grouped them by their characteristics.

They are broadly divided into three types: leading, coincident, and lagging indicators.

Leading indicators are signals that provide an early sign of the future direction of the economy,

Coincident indicators show the current state of the economy as it is,

And lagging indicators confirm changes in the economy only after they have already occurred.

Early warning signals from U.S. housing starts and building permits before the 2008 financial crisis are introduced as typical examples of leading indicators, and reading this helped me finally understand why real estate indicators are mentioned so frequently.

Conversely, the unemployment rate is classified as a typical lagging indicator. This is because it is only captured in the numbers after the economy has already worsened and companies have started to reduce hiring. However, during the COVID-19 pandemic, the gap between weekly unemployment claims and the stock market was particularly striking. Everyone has probably seen scenes where the market moves independently even as unemployment figures skyrocket; hearing that this happens because the nature of the indicator and the market’s gaze are looking at different time axes was both frustrating and convincing.

Economic Indicator Calendars: How to Apply Them in Practice

One habit that changed after closing the book is that I now scan the weekly economic indicator release schedule in advance.

If you know ahead of time which indicators are coming out this week and what the market consensus is, you are much less likely to be swayed when news floods in on the day of the release.

For example, in a week where a CPI release is scheduled, assets sensitive to interest rates often move in the days leading up to it, which is the process of the market pricing in the consensus.

If the number on the day of the release is similar to the consensus, it is often treated as “old news” and passes without much reaction. Conversely, there are days when the market reacts hypersensitively even to a very slight difference, and the book explains that such asymmetric reactions are intertwined with the monetary policy uncertainty or market positioning at that time.

With this perspective, every time I see the expression “a surprise indicator that exceeded expectations” in the news, I reflexively become curious about where that expectation came from. Perhaps this is the most practical habit I gained from this book.

Shortcomings and Target Audience

Of course, there are downsides. Many reviews commonly point out that because the explanation is overwhelmingly focused on U.S. indicators, it is difficult for Korean investors to apply it directly to practical work. While reading, I also felt that while U.S.-originated indicators like non-farm payrolls or the ISM index were detailed, I had to fill in the gaps myself on how to relate them to domestic indicators.

Some also say that for certain indicators, it does not sufficiently reflect the recently changed interpretation trends. Nevertheless, I think it remains a highly useful reference book for those who do not want to let the numbers appearing in economic articles just wash over them, or for those who want to figure out for themselves why the market reacted that way.

This one book won’t change your investment results overnight. However, the next time you see news about the release of employment data or the consumer price index, you will at least be reminded of the fact that another number called ‘consensus’ is hidden behind the headline number.

I believe just that would significantly change your attitude toward reading economic news.

At the very least, those nights spent feeling bewildered, asking “Why is it rising when the indicator was bad?” will likely decrease. It was even a bit of a waste that I had left it on my bookshelf for so long; if you often find yourself feeling frustrated in front of economic news, it is worth opening at least once.