Investing could be as tricky as walking over a minefield. Without putting the right economic indicators to work could mean the difference between a gain or loss.Interest rates, economic growth, unemployment, inflation, these are terms we hear every day, but what do they really mean in the stock market and the world of investing. While most of us have a rough working knowledge of their meanings, we’d be hard-pressed to explain the impact they have on our daily lives. But they do have an impact, especially if we are invested in the stock market. So before getting into stocks, let’s take a moment to walk through some basic principles of economics.

Interest rates are an indication of how much it costs to borrow money. When interest rates are high, people are slower to borrow to buy large priced items, such as houses or cars. When interest rates are low, consumers are quicker to take on debt, because paying it off will be less expensive.

Economic growth happens when people are out there spending money. As the economy grows, jobs are created, which means unemployment goes down. When there are fewer people out of work, employers generally have to look harder for workers and pay them more.

Low unemployment and rising wages are factors that contribute to inflation. In a period of inflation, goods and services cost more, and money doesn’t buy as much. Inflation occurs at times of high employment because as more people make more money, prices go up. (This is partially because companies’ costs go up when they have to pay higher wages, and partially because when people have more money, they want to buy more than the economy is able to produce, which triggers that most basic economic principle: the law of supply and demand.)

A side effect of inflation is an increase in interest rates. The government tends to raise interest rates when the economy shows signs of inflation, in order to slow people’s buying and curb economic growth. But higher interest rates also make it more expensive for companies to raise capital by borrowing, and that cuts into their profitability—which is one of the chief things investors consider in valuing stocks. Also, when interest rates are high, yields go up on bonds, and bonds begin to look like better investments than stocks. So investors take money out of stocks and put them into bonds, and stock prices fall. So inflation, as you can see, is an enemy of the stock market.

What we see here is what seems to be good for you as a worker, lots of jobs and higher wages, may be bad for you as an investor. And the inverse is also true. The markets tend to go up in reaction when there’s bad economic news, like a moderate increase in unemployment or a slowdown in wage growth. However, if unemployment is high, growth stagnant, and consumer spending low, that’s just as bad for stocks as high interest rates are.

Banking Bankers bottom line is before throwing your money into stocks, take a good look at the economy.

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