Every month investors in financial markets sort through multiple economic reports as they look to gauge the outlook for the economy and financial markets. There are many different kinds of economic reports. Some are so-called soft data, which represents sentiment surveys like the Conference Board's Consumer Confidence Index or the ISM Manufacturing Index. And there is hard data, which represents actual economic decisions made by consumers and businesses. A few examples include housing starts, retail sales or weekly jobless claims. Complicating the situation, some economic data is final upon release while other data can get revised multiple times.

Not all economic reports are what investors would call high impact data. Those reports have a higher chance of moving the markets (equity, fixed income, credit, or currency markets). A few examples of high impact economic reports are the monthly jobs report, the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) inflation reports, and the quarterly gross domestic product (GDP) report.

Other monthly economic data, like the trade report or wholesale inventories, typically aren't market moving events. If you can only focus on three economic reports each month, these are the most important:

Monthly Jobs Report

The monthly jobs report, also known as the nonfarm payroll employment report, is released by the Bureau of Labor Statistics (BLS) at the start of each month and is probably the single most important economic report released each month. The main reason is that it provides a detailed snapshot each month of the health of the U.S. consumer. Consumer spending represents about two thirds of the overall economy.

Within the jobs report, some of the key data points are changes in the number of jobs created each month, average hourly earnings, the labor-force participation rate, the unemployment rate, and what sectors of the economy are adding or subtracting workers each month. Overall, the report provides a look at the health of the economy from the perspective of consumers and employers.

While the monthly jobs report is important, there are some limitations. Monthly jobs data often gets revised the following month and sometimes by a meaningful amount. Data within the jobs report comes from two different sources: The Establishment Survey and the Household Survey, and there may be times when the two data sets don't fully match up with each other.

The survey response rate, which generates the data provided by the BLS, has been declining over time. This may lead to less accuracy, more revisions and greater uncertainty determining the true underlying trend in the jobs market. Plus, the BLS (like other government agencies) uses seasonal adjustments for things like holidays, weather patterns and the school year. They don't always get things right each month and may have to make changes to their seasonal adjustments over time.

ISM Manufacturing Index

On the first business day of each month, the Institute for Supply Management's Manufacturing Purchasing Managers' Index is released. The index dates back several decades and consists of several components that provide a look into the health and outlook of the U.S. manufacturing sector. A reading above 50 indicates expansion while a reading below 50 indicates contraction.

After a multiyear period of below trend growth, the U.S. manufacturing sector has improved in recent months and the ISM Manufacturing Index has now been above the key 50 level for eight straight months, according to FactSet.

Within the report, the most important components are new orders (probably the most important forward-looking component in the report); business hiring plans; trends in production; inventory, levels and supplier deliveries. Taken together, these components help provide a good picture of the state of the U.S. manufacturing sector.

CPI Inflation Report

Published by the Bureau of Labor Statistics, the CPI inflation report measures changes in the prices of goods and services and provides information on inflation within the U.S. economy. There are two main versions of the CPI report, the headline CPI report and the core CPI report, which excludes food and energy. Food and energy prices are typically more volatile from month to month than other components. However, the downside of removing food and energy each month is that you are removing two categories which all consumers spend money on each month.

The CPI report consists of eight expenditure groups which are then broken down into more than 200 line items. Examples of the eight major expenditure groups include food and beverages, housing, apparel and medical care.

The CPI report helps determine Federal Reserve Bank policy and the outlook for changes in interest rates. Changes in inflation also play an important role in setting valuation levels for the stock market and determining the level of yields in the bond market.

Other Economic Reports

If those three aren't enough, here's a list of reports you can add to your calendar:

The monthly GDP report provides a picture of the strength of economic growth each quarter across different parts of the economy.

Weekly Jobless Claims is a timely report on the state of jobs market that comes out each Thursday morning

The ISM Services Index is similar to the ISM Manufacturing above but for the services side of the economy.

The Consumer Confidence report provides insight into the state of the U.S. consumer each month.

The Retail Sales report provides information on consumer spending trends in the economy each month.

The National Federation of Independent Business (NFIB) Small Business Survey provides a look at the health and outlook for small businesses in the U.S. each month.

The Conference Board's Leading Economic Index is an index of 10 components that provides valuable insight into the outlook for the economy each month.

As an investor, it's hard to focus on just one report because each report provides important clues as to the current state of the economy and the future outlook. However, if you could only choose just one each month, it would most likely be the monthly labor market report. Yes, there are shortfalls in this report, but we believe that the positives certainly outweigh the negatives.

Michael Sheldon, CFA, CFP, is a senior portfolio manager at Washington Trust Advisors. He was formerly chief investment officer of RDM Financial Group in Westport, Conn. and has worked in fixed-income sales and equity market strategy at other firms. He graduated from Vassar College in 1988 with honors in economics.

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