The most important indicator is the GDP report.
Basically, the GDP is the broadest measure of the state of an economy. The
GDP is an aggregate monetary value of all the goods and services produced by
the entire economy during a quarter (excluding international activity). The
key number to look at is the GDP growth rate. Generally, deviations from the
normal level can prove to be rather influential. Growth above this level is
often thought to be unsustainable and a precursor to high inflation, while
growth below this range (and especially negative growth) means that the
economy is running slowly, which can lead to increased unemployment and
lower spending. It is worth noting that each initial GDP report will be
revised twice before the final figure is settled upon: the advance report is
followed by the preliminary report about a month later and a final report a
month after that. Significant revisions to the advance number can cause
additional ripples on the markets.
Do not confuse Gross Domestic Product with Gross National Product (GNP). GDP
includes only goods and services produced within the geographic boundaries
of a country, regardless of the producer's nationality. GNP does not include
goods and services produced by foreign enterprises, but does include goods
and services produced by national firms operating in foreign countries. For
example, if a U.S. firm was operating a chain of stores in France, the goods
and services produced by those stores would not be included in the GDP, but
would be included in the GNP. As the global economy grows, the difference in
GDP and GNP is decreasing for developed countries like the U.S. But for
smaller, developing countries, the difference can be substantial.
Consumer Price Index
(CPI)
The CPI is the most widely used measure of inflation.
It gauges changes in the price level of a market basket of consumer
goods and services purchased by households. The bundle includes about
200 types of goods and thousands of products, ranging from foods and
energy to expensive consumer goods. The prices are measured by taking a
sample of prices at different stores. In addition to the overall CPI
figure, it is important to also look at the core CPI report excluding
volatile goods like food and energy and gives a closer measure of real
inflation. Most reports of the CPI figures will include both the overall
and the core numbers.
There is also a harmonized CPI (HICP). This is an indicator of inflation
and price stability for the European Central Bank (ECB). It is a
Consumer Price Index which is compiled according to a methodology which
has been harmonised across the EU nations. The HICP is produced by each
European Union country to help measure inflation and to guide the ECB in
shaping its monetary policy. The HICP is also used as the basis of the
European Index of Consumer Prices that is weighted towards household
expenditures.
Producer Price Index
(PPI)
The PPI is one of the two basic ways to measure
inflation (the other one is the CPI). The index measures the price of
goods at the wholesale level. So, while the CPI tracks the cost paid for
goods by consumers, the PPI shows how much the producers are getting for
the goods. There are three types of goods measured by the PPI: crude,
intermediate, and finished goods. Crude goods are raw materials used in
production of something else, intermediate goods are components of a
larger product, and finished goods are what is actually sold to a
reseller. The finished goods data are the most closely watched since
they are the best gauge of what consumers will actually have to pay.
The Core PPI is a measurement of prices assessed by producers of goods
and services, factoring out the items that fall under the food and
energy category.
Employment indicators
One of the key macroeconomic indicators is the
Unemployment Rate, which is the percentage of unemployed workers above
18 years in relation to the total labor force. It is based on a survey
of a random sample of about 60,000 households, 375,000 plants. The
unemployment rate is calculated by dividing the number of unemployed by
the number in the labor force, where the labor force is the sum of the
unemployed and the employed. The natural rate of unemployment is
considered to make about 4-5% of the labour force. It is treated as an
indicator of possible inflationary pressure through wages increase.
Salary is considered to grow faster with low unemployment rate,
especially in case inflation acceleration is expected.
There are also such reports as the Average Workweek and Average Hourly
Earnings. It should be kept in mind that the work force is not the
entire population; it is a subset of people that meet certain criteria.
The unemployment picture is a key gauge of the health of the economy
while the Average Hourly Earnings figure impacts inflation.
Non-Farm Payrolls, known as Non-Farm Employment Change, is a fundamental
indicator, which measures jobs added in the previous month. The report
excludes farm-related jobs because they tend to be seasonal general and
not necessarily indicative of employment trends.
In addition to these standard reports, the U.S. statistical authorities
also publish a weekly Initial Jobless Claims report on the number of
people filing for unemployment benefits for the first time. These
numbers help to take the pulse of the job market. Another crucial report
on employment in the U.S. is the ADP National Employment Report that
estimates the changes in U.S. employment using payroll data for over
500,000 firms from Automatic Data Processing, Inc. (ADP). This
information is compiled by Macroeconomic Advisors, LLC into a report
showing aggregate numbers, as well as segments defined by companies'
size, goods versus services, and manufacturing vs non-manufacturing
firms.
Retail Sales Index
The Retail Sales Index measures goods sold within the
retail industry, from huge chains to small local stores, by taking a
sampling of a set of retail stores across the country. This report
reflects data for the previous month. Many analysts prefer to look at
the figures excluding auto, which means excluding the volatile car sales
figure. This number is believed to be a better measure of
across-the-board purchasing trends. The report does not include money
spent on services, so it represents less than half of total consumption
during the month. However, even with these limitations, the figures are
closely watched as an indicator of the state of the economy.
Consumer Confidence
Index
Consumer confidence is considered an essential
element of the economic picture. The report measures how confident
consumers feel about the state of the national economy and their
spending potential. The idea is that the more confident people feel
about the stability of their incomes, the more likely they are to make
purchases. The Consumer Confidence Index uses about 5,000 households as
a sample population and even measures the number of help wanted ads in
newspapers to gain a sense of the state of the labor market. Many
analysts believe that high consumer confidence can cure a lot of what
ails an economy. When most data points to a slumping economy, high
consumer confidence and consistent spending may help soften the blow or
spark a recovery.
Beige Book
The Beige Book is part of the Federal Open Market
Committee's preparations for its meetings and is published eight times a
year. The report is released on two Wednesdays before each FOMC meeting
at 2:15 pm EST. The book is a summary of economic conditions in each of
the Fed's regions. The report is mostly seen as an indicator of how the
Federal Reserve might act at its upcoming meeting.
Durable Goods Orders
The Durable Goods Orders report measures how much
people in the U.S. are spending on long-term purchases (products that
are expected to last more than three years). The report is made at 8:30
am EST around the 26th of each month and is thought to provide insight
into the future of the manufacturing industry. The reports are broken
down by industry, which helps to eliminate the effects of single
volatile industries like defense spending. Investors are concerned with
the overall picture, and the markets are moved by general trends across
most industries.
Factory Orders
The indicator signals industrial demand on durables
and non-durables. An increase in the reading indicates a possible growth
in production activity, while a decrease signals a phasedown. That is
why the currency rate rises on increases and falls on decreases. This
indicator includes Durable Goods Orders and Non-durable Goods Orders.
The Durable Goods Orders indicator includes goods with intended lifespan
of more than 3 years (cars, furniture, building materials), which make
more than 50 of the total. Non-durable goods orders include food,
clothes, light industrial goods etc. The Factory Orders report
characterizes production activity. Increase in the indicator is a
positive factor for the economy, while decrease in the indicator signals
a downturn.
Current Account
Current Account is the sum of the balance (i.e., net
revenue on exports minus payments for imports), factor income (earnings
on foreign investments minus payments made to foreign investors) and
cash transfers. The current account balance is one of two major measures
of the nature of a country's foreign trade (the other being the net
capital outflow). A current account surplus increases a country's net
foreign assets by a corresponding amount, and a current account deficit
does the reverse. Both government and private payments are included in
the calculation. It is called the current account because goods and
services are generally consumed in the current period.
Initial Jobless
Claims
This weekly report indicates the number of claims
applied to the Employment Department for the redundancy awards. This is
an up-to-date, but often delusive, indicator of economic tendency.
Increase/decrease in the number of those who applied for initial claims
signals in favor of growth slowdown/acceleration. In this respect, the
influence of this report on the market is low, though some impact on
trading behavior is probable in rare cases. Due to the weekly data
variability, most of analysts prefer monitoring the four-week moving
average to get a more distinct reading while determining the main market
tendency. Usually strong displacement (about 30K) is considered to get
significant change of the trend. The steady decrease in initial jobless
claims signals economic growth and improvement in the labor market and
causes the dollar growth. The readings above 400,000 point to the
problems in the labor market.
Tankan Survey
To compose a survey, about 8-10 thousand businessmen
from different economic spheres are polled. The companies, among which
10-15 are large enterprises, 30-35 — medium-sized enterprises, 50-55
small enterprises, are asked about 1) business environment, 2)
production and sales, 3) demand and supply, 4) prices level, 5) gains,
6) direct investments, 7) employment, 8) fiscal conditions. Top managers
are polled separately. Estimation methods: Diffusion Index (DI) — «Favourable»
minus «Unfavourable», % points, percent change — change of the index in
relation to the same period of the previous year. The survey increase
signals improving economic conditions and is favourable for the JPY
rise.
ZEW Survey
ZEW Survey is the main indicator of investors'
confidence. It is calculated on basis of 350 analysts' and institutional
investors' poll. The indicator reflects the difference between analysts
who are optimistic about forthcoming economic development of Germany
within six months and those who are pessimistic. If most of respondents
are optimistic, the reading is above zero, if pessimistic — below zero.
Example: if thirty analysts are optimistic, thirty are neutral and forty
are pessimistic, the reading will make -10. The survey is used for
German economic prospects estimation. ZEW Survey growth triggers the
euro growth.
Personal Consumption
Expenditures (PCE)
PCE is a measure of price changes in consumer goods
and services. Personal consumption expenditures comprise actual and
imputed expenditures of households; the measure includes data pertaining
to durables, non-durables, and services.
Similar to the CPI, the PCE is a report (a part of the Personal Income
report) presented by the Bureau of Economic Analysis of the Department
of Commerce.
The PCE is a fairly predictable report that has little impact on the
markets.
Personal Income
Personal Income measures households income from all
sources before personal income tax is paid. It includes rental income,
interest income, government subsidy payments, dividend income, etc.
Personal income indicates future consumer demand. It is reported
together with Personal Spending. Personal income increase may trigger
growth in retail sales, which is a positive factor for economic
development and provoke USD rise.
Capacity Utilization
This indicator measures the degree of industrial
capacity utilization. This is the ratio of total output to the
maximum-rated capacity. It shows the current state of the economy. The
optimal value of this indicator is 81.5%. The value more than 85%
signals that the economy is overheated. A lower value implies a
weakening currency and economy
University of
Michigan Survey of Consumer Confidence Sentiment
This is a monthly survey of consumer confidence
conducted by the University of Michigan to detect consumers’ sentiment.
In fact, consumers’ willingness to spend money is measured. It is a
leading indicator of the consumer climate. It consists of two
components: sentiment (about 40% of the total index) and expectations
(the other 60%). About 500 consumers answer five questions about current
and future economic situation (two and three questions correspondingly).
Answers to the first two questions form Current Conditions survey,
whereas the last three questions form the Expectations index. The
increase in the index signals positive perspectives of the economic
growth, whereas decrease signals possible deceleration in growth. The
index increase triggers USD rise.
Philadelphia Fed
Index
The index surveys about 100 manufacturers from
Philadelphia, the U.S., which indicates their attitude towards the
current economic situation and perspectives for the nearest six months.
The index signals growth slowdown when it is below zero. This index can
indicate what to expect from the ISM Index (Institute of Supply
Managment’ index), which comes out a few days later. This index increase
triggers USD rise.
Chicago PMI
Chicago PMI is the result of Chicago industry
purchasing managers polling. It characterizes manufacturing orders,
output prices, and inventories. The readings below 50 indicate an
economic recession. The index is very closely watched. It has a
significant impact on the market because it can give an idea of what
will be the ISM Manufacturing Index. The report is released on the last
business day of each month at 3:00pm (GMT).
Personal Spending
Personal Spending is a comprehensive measure of how
much consumers spend each month, counting expenditures on durable goods,
consumer products, and services. A healthy Personal Spending figure
means that consumers are buying goods and services, fueling the economy
and spurring output growth. The report is particularly valued for
forecasting inflationary pressures. Taken in excess, these high levels
of consumption and production may lead to an overall increase in prices.
Indeed, the Fed uses a measure of inflation derived from the PCE as
their primary gauge of inflation.
On the other hand, persistently low Personal Spending may result in
decreasing levels of output and an economic downturn.
ISM Manufacturing
Index
The index is based on a survey of more than 300
manufacturing firms by the Institute of Supply Management. The ISM
Manufacturing Index monitors employment, production inventories, new
orders, and supplier deliveries.
By monitoring the ISM Manufacturing Index, investors are able to better
understand national economic conditions. When this index is increasing,
investors can assume that the stock markets should increase because of
higher corporate profits. The opposite can be thought of the bond
markets, which may decrease as the ISM Manufacturing Index rises because
of sensitivity to potential inflation.
Purchasing Managers'
Indexes (PMI)
These economic indicators are derived from monthly
surveys of private sector companies. They provide insight into business
conditions in services and manufacturing sectors of a country. The
headline figure is reported as an index where 50 reflects the centerline
of boom-bust sentiment. The larger the divergence from 50 is, the bigger
the change in business conditions is.
New Home Sales
This index shows the number of new dwellings sold in
the past month. An increase in home sales suggests a growing housing
market which tends to fuel the rest of the economy. The New Home Sales
report confirms trends in housing reports that record earlier stages of
construction such as Building Approvals and Construction Work Done and
is considered a leading indicator for broader economic developments.
The headline figure is the percentage change in housing sales from the
previous month.
Building Approvals
The indicator represents a number of domestic
building permits granted for the month. Strong growth in new approvals
and permits indicates a growing housing market. Because real estate
generally leads economic developments, housing tends to thrive at the
start of booms and wane at the onset of recession. The figure can be
used with others to forecast future growth in the economy as a whole. A
strong housing market also tends to lead consumer spending. The headline
number is the seasonally adjusted percentage change in new building
approvals from the previous month.
Housing starts
This indicator reflects the rate of growth in housing
construction. The Housing Starts report acts as an indicator measuring
the strength of a construction sector and housing market. Economists
also use the figure as a leading indicator for the economy as a whole
due to Housing Starts' sensitivity to changes in the business cycle. The
number of housing starts dwindles at the onset of a recession and
quickly grows at the beginning of an economic boom; consequently, a high
Housing Starts figure forecasts strong economic growth.
The headline figure is the percentage change in new home starts.
Existing Home Sales
The Existing Home Sales indicator records sales of
previously owned homes in the United States. This report provides a
fairly accurate assessment of housing market conditions, and because of
the sensitivity of the housing market to business cycle twists, it can
be an important indicator of overall conditions at times when housing is
particularly important to the economy.
While used home sales are not counted in GDP, they do affect the U.S.
economy. Sellers of used homes often use capital gains from property
sales on consumption that stimulate the economy. Higher levels of
consumer spending may also increase inflationary pressures, even as they
help grow the economy.
The Existing Home Sales report is not as timely as other housing
indicators like New Home Sales or Building Permits. By the time the
Existing Home Sales is released, market conditions may have changed.
Consumer Confidence
Consumer Confidence is a measure of popular sentiment
regarding an economy. The figure is derived from a survey that asks
thousands of consumers about personal expenditure patterns and
inflationary expectations. In general, rising consumer confidence
precedes increased consumer spending, which drives both economic growth
and inflation.
A headline figure above 50 shows positive consumer sentiment, while a
number below 50 shows negative consumer sentiment; the greater the
distance is, the stronger the sentiment is.
Trade Balance
Trade Balance is the difference between imports and
exports of goods. Trade deficit indicates that imports of goods are
greater than exports. When exports are greater than imports, there is a
trade surplus. Trade surpluses indicate that funds are coming into a
country in exchange for exported goods.
The balance of trade is sometimes divided into a goods and a services
balance.
Trade balance forms part of a current account.
