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Economic indicators

Gross Domestic Product (GDP)

The most important indicator is the GDP report. Basically, the GDP is the widest measure of the state of the economy. The figure is released at 8:30 am EST on the last day of each quarter and reflects the previous quarter. The GDP is the aggregated monetary value of all the goods and services produced by the entire economy during the quarter (with the exception of international activity). The key number to look for is the growth rate of GDP. Generally, the U.S. economy grows at around 2.5-3% per year and deviations from this range can have a significant impact. Growth above this level is often thought to be unsustainable and a precursor to high inflation, and the Fed usually responds by trying to slow down the "overheated" economy. 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 through the markets. The GDP numbers are reported in two forms: current dollar and constant dollar. Current dollar GDP is calculated using today's dollars and makes comparisons between time periods difficult because of the effects of inflation. Constant dollar GDP solves this problem by converting the current information into some standard era dollar, such as 1997 dollars. This process factors out the effects of inflation and allows easy comparisons between periods. Don't confuse Gross Domestic Product with Gross National Product (GNP). GDP includes only goods and services produced within the geographic boundaries of the U.S., regardless of the producer's nationality. GNP doesn't include goods and services produced by foreign producers, but does include goods and services produced by U.S. 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 falling for developed countries like the U.S. But for smaller, developing countries, the difference can be substantial. For the latest report, visit the Bureau of Economic Analysis website.

Consumer Price Index (CPI)

The CPI is the most widely used measure of inflation. The report is released at 8:30 am EST around the 15th of each month and reflects the previous month's data. The CPI measures the change in the cost of a bundle of consumer goods and services. The bundle includes about 200 types of goods and thousands of actual 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 number, it is important to also look at the "core rate." The core rate excludes volatile goods like food and energy and gives a closer measure of real inflation. Most reports of the CPI numbers will include both the overall and the core numbers. The CPI is also important because it is used to adjust the annual changes to Social Security payments. There has been much debate about how well the CPI measures inflation, and some feel that it is an imperfect way to track rising prices. To see the latest report, visit the Bureau of Labor Statistics.

The Producer Price Index (PPI)

As mentioned above, the PPI is one of the two most important ways to measure inflation (along with the CPI). The PPI is released at 8:30 am EST during the second full week of each month and reflects the previous month's data. The index measures the price of goods at the wholesale level. So, while the CPI tracks the cost paid by consumers for goods, the PPI tracks how much the producers are receiving for the goods. There are three types of goods measured by the PPI: crude, intermediate, and finished. 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 because they are the best measure of what consumers will actually have to pay. The latest report can be found at the Bureau of Labor Statistics.

Employment Indicators

The major employment announcement occurs on the first Friday of every month at 8:30 am EST. This announcement includes the unemployment rate (the percentage of the work force that is unemployed), the number of new jobs created, the average hours worked per week, and average hourly earnings. Note: 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. In addition to this monthly report, there is also a weekly report on initial jobless claims-the number of people filing for unemployment benefits for the first time. Though far less important than the monthly report, these numbers help to take the pulse of the job market. For the latest monthly report, visit the Bureau of Labor Statistics.

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. Released at 8:30 am EST around the 12th of the month, the report reflects data from the previous month. This report will be the "advance" report, which can be revised fairly significantly after the final numbers are crunched. Many analysts choose to look at the figures "ex-auto", which means excluding the volatile car sales figure. It is thought that this number is 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. For the latest report, visit the U.S. Census Bureau.

NAPM

The National Association of Purchasing Management index (NAPM) measures conditions in the manufacturing sector. It is released on the first business day of the month at 10 am EST and reflects the previous month's data. According to the association, a reading over 50% indicates that manufacturing is growing, while a reading below 50% means it is shrinking. In addition to providing an excellent picture of the state of manufacturing (the data is only 1 day old) the NAPM is also thought to be an early indicator of inflationary pressures. You can find the latest report by visiting the NAPM.

Consumer Confidence Index

Consumer confidence is considered a crucial part of the economic picture. Released on the last Tuesday of the month at 10 am EST, the report measures how confident consumers feel about the state of the economy and their spending power. 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 Report 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 power a recovery. For the latest release, visit the Conference Board Company.

Beige Book

The Beige Book is part of the Federal Open Market Committee's preparations for its meetings and is published 8 times a year. The report is released 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 Fed might act at its upcoming meeting. For the latest reports, visit the Federal Reserve website.

Durable Goods Orders

The durable goods orders report measures how much people 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 for 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. Visit the U.S. Census Bureau for the latest report.

Employment Cost Index (ECI)

The ECI is another important measure of inflation. Released at 8:30 am EST on the last Thursday of January, April, July, and November, the ECI measures the cost of labor including wages, benefits, and bonuses. The reason the ECI is thought to be an indicator of inflation is that as wages increase, the added cost is often passed to consumers shortly thereafter in the form of higher prices (inflation). In combination with the productivity report (see below) the ECI can reveal whether the increased cost of labor is justified or not. For the latest report, visit the Bureau of Labor Statistics website.

The Productivity Report

The productivity report measures how much output is created by a unit of labor. Released at 8:30 am EST around the 7th of the second month of each quarter, the data reflects the activity during the previous quarter. This indicator has been of secondary importance until relatively recently because Fed Chairman Alan Greenspan has been very interested in productivity growth. Many economists believe that productivity growth allows the economy to grow at unusually high rates without causing inflation. If productivity is growing, employment costs can increase without heightened inflation resulting. For the latest data, visit the Bureau of Labor Statistics.

Unemployment Rate

A measure of unemployed workers (above 18 years) in relation to the total labor force Unemployment Rate is calculated monthly by surveying a random sample of about 60,000 households, 375,000 plants. It is one of the key macroeconomic indicators. Only unemployed are taken into account, that is jobless people, which actively look for work. 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. In case rates hikes are expected unemployment rate decrease triggers USD advance.

Non-farm Payrolls

Non-farm Payrolls represent the total number of paid US workers of any business, excluding the following employees: general government employees, employees of nonprofit organizations that provide assistance to individuals, farm employees. About 400 thousand of companies and 50 thousand of home economics are estimated. These data are released monthly, revised in accordance with seasonal fluctuations, etc. Non-farm Payrolls, Unemployment Rate, Average Workweek and Hourly Earnings are used for inflation rate specification, that is for rates changes also. High rates of growth of the indicator stimulate economic growth acceleration.

Factory Orders

The indicator signals industrial demand on durables and non-durables. This indicator increase characterises production activity and its possible growth, while its decrease signals phase-down. That is why currency rate rises on this indicator increase and falls on decrease. This indicator includes Durable Goods Orders and Non-durable goods orders. Durable Goods Orders include 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. Factory Orders characterise production activity. Increase in the indicator is a positive factor for the economy, while decrease in the indicator signals decline.

Current Account (Balance of Payments)

Balance between payments to foreigners (debits) and payments received from foreigners (credits) includes: trade balance or trade gap and capital payments gap. Credits surplus over debits makes balance of payments and causes the national currency growth. Debits surplus over credits makes current account deficit and causes the national currency fall. Current account surplus is a favorable signal of the national currency.

Initial Claims (Jobless Claims)

A number of people who applied initial jobless claims. The data indicate the number of initial claims applied to the Employment Department for the redundancy award receiving. The data provide up-to-date, but often delusive, indicator of economic tendency. Increase/decrease of those who applied initial claims signals in favor of growth slowdown/acceleration. In this respect the influence on market is low, though some influence 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 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 of initial claims signals economic growth and improvement in the Labor market and causes the dollar growth. The reading above 400 000 signals the problems in the Labor market.

Tankan Survey

To compose the 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 economic conditions improving and it is favourable for JPY rise.

ZEW Survey

ZEW Survey is a main indicator of investors' confidence. It is calculated on basis of 350 analysts' and institutional investors' polling. 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 causes the euro growth.

Personal Consumption / Expenditures (Personal Spending)

PCE is comprised of three categories: durables, nondurables, and services. The retail sales report provides a good read on durable and nondurable consumption. Service purchases tend to grow at a fairly steady pace, making this a relatively predictable report. Economic recession often occurs once consumers stop spending money, which triggers decrease in demand. On the back of it this indicator increase is a positive factor for the national economy development. This indicator increase may trigger growth in Retail Sales, which is a positive factor for economic development and triggers USD rise.

Personal Income

Personal income measures households income from all sources before personal income tax is paid.The measure of income from all sources, which can be estimated using payrolls and earnings data from the employment report. 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 triggers USD rise.

Capacity Utilisation

The indicator of the degree of industrial capacity utilization. Capacity utilization shows the degree of economic industrial capacity utilization. This is quite a good indicator of economic stocks for the future. The optimum value for this indicator is 81.5. The value of more than 85 signals that the economy is overheated. Though even excessive value of this indicator may trigger currency strengthening, as high pressure economy brings about inflation, which signals that the Fed may raise discount rate. In case the value of the indicator is much lower than the optimum one it signals weak economy and may trigger currency weakening. Price of suppliers of goods may influence estimating as this price increase may push stocks and bonds prices down. CU approach to the threshold level (about 85) is treated as a signal of possible inflation.

University of Michigan Consumer Confidence Index

A monthly survey of consumer confidence conducted by the University of Michigan to detect consumers´ confidence. Thus, consumers´ willingness to spend money is measured. It is a leading indicator of consumer climate. It consists of two components, sentiment (about 40% of the total index) and expectations (the other 60%) indices. About 500 consumers answer 5 questions about current and future economic situation (2 and 3 questions correspondingly). Answers to the first two questions form current conditions survey, whereas the last three questions form the expectation index. The increase in the index signal positive perspectives of the economic growth, whereas decrease signals possible deceleration in growth. The index increase triggers USD advance.

Philadelphia Fed Index

Survey of manufacturers from Philadelphia (the USA), which indicates their attitude towards current economic situation. Philadelphia Fed index is a survey of about 100 manufacturers in Philadelphia, which indicates their attitude towards current economic situation and perspectives for the nearest 6 months. The index signals economic rates of growth slowdown when it is below zero. This index can indicate what to expect from ISM index (Institute of Supply Managment´ index, former NAPM - National Association of Purchasing Managers), which comes out a few days later. This index increase triggers USD rise.

Chicago PMI Index

Chicago PMI index is the result of Chicago industry purchasing managers polling. It characterizes manufacturing orders, output prices and trading stocks status. The index readings below 50 characterise economic recession. It is released shortly before NAPM, which attracts additional attention to it.Chicago PMI index readings above 50 are usually treated as industrial activity growth ratio.

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