Forex Trading - Economic Indicators

Leading Economic Indicators

Wed, 30 Apr 2008 03:01:44 -0700

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Following is a list of economic indicators which are used in the USA. Obviously, there are many more, as well as in other leading economies (such as Germany, the UK, Japan, etc.). In general, not only the numerical value of an indicator is important, but also the anticipation and the forecast to such, and the impact of the relation between anticipated and actual figures on the market.

Such macro indicators are being followed by the vast majority of traders worldwide. The "quality" of the published data may differ over time. The value of the indicator data is considered important if it presents new information, or is instrumental to drawing conclusions which couldn't be drawn under other reports or data. Furthermore, an indicator is highly valuable if one may use it to better forecast future trends.

Note that in the USA most indicators are published on certain week days, rather than a monthly date (e.g. - the second Wednesday in each month, etc.).

Each indicator is marked with "H"-"M"-"L" (according to its level of importance, as commonly considered).

H: CCI - Consumer Confidence Index
H: CPI - Consumer Price Index; Core-CPI
H: Employment Report
H: Employment Situation Report
H: FOMC Meeting (Federal Open Market Committee): Rate announcement
H: GDP - Gross Domestic Product
H: ISM (Institute for Supply Management) Manufacturing Index
H: MCSI - Michigan Consumer Confidence Index
H: NFP - Changes in non-farm payrolls
H: PMI - Purchasing Managers Index
H: Retail Sales Data; Retail Sales less Automotives
H: Tankan Survey
H: TIC (Treasury International Capital) Data on transactions in long term securities
H: Trade Balance
L: Beige Book
L: ECI - Employment Cost Index
L: PCE - Personal Consumption Expenditure
M: Budget Statement Monthly
M: Composite Index of Leading Indicators
M: Current Account
M: Durable Goods
M: GDP Price Deflator
M: Housing Starts
M: Industrial Production Capacity; Production Utilization
M: Initial Jobless Claims
M: Philadelphia Fed Index (Business Outlook Survey)
M: PPI - Producer Price Index; Core-PPI

PPI - Producer Price Index

Tue, 29 Apr 2008 22:31:12 -0700

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PPI - Producer Price Index; Core-PPI - Bureau of Labor and Statistics; The second full week of each month, 8:30am EST, covers previous month data. The PPI is not as widely used as the CPI, but it is still considered to be a good indicator of inflation. This indicator reflects the change of manufacturers’ cost of input (raw materials; semi-finished goods; etc.). Formerly known as the "Wholesale Price Index", the PPI is a basket of various indexes covering a wide range of areas affecting domestic producers. Each month approximately 100,000 prices are collected from 30,000 production and manufacturing firms. It is not as strong as the CPI in detecting inflation, but because it includes goods being produced it is often a forecast of future CPI releases.

Philadelphia Fed Index (Business Outlook Survey)

Tue, 29 Apr 2008 22:31:10 -0700

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Federal Reserve Bank of Philadelphia; Around the 17th of each month, 10:00am EST, covers previous month data. The Business Outlook Survey is a monthly survey of manufacturers located around the states of Pennsylvania, New Jersey and Delaware. Companies surveyed indicate the direction of change in their overall business activity and in the various measures of activity at their plants. The index signals expansion when it is above zero and contraction when below. This index is considered to be a good indicator of changes in everything from employment, general prices, and conditions within the manufacturing industry. It isn't a big market mover, but the results found in the survey can indicate what to expect from the Purchasing Managers' Index (which comes out a few days later and covers the entire U.S.).

Initial Jobless Claims

Tue, 29 Apr 2008 22:31:07 -0700

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Initial Jobless Claims - Department of Labor; Once a week on Thursday at 8:30am EST, covers previous week data. The data states the number of people who applied to receive unemployment pay for the first time. It has low to medium importance as this relates to weekly data with high fluctuations; average of four weeks is more stable.

Industrial Production Capacity - Production Utilization

Tue, 29 Apr 2008 22:31:05 -0700

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Industrial Production Capacity; Production Utilization - Federal Reserve; Middle of the month, 9:15am EST, covers previous month data. It is a chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and of how many available resources are being used (commonly known as capacity utilization). In addition the Capacity Utilization Index provides an estimate of how much factory capacity is in use. They are important indicators as the manufacturing sector accounts for one-quarter of the economy.

Housing Starts

Tue, 29 Apr 2008 22:31:01 -0700

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Housing Starts - Bureau of Census; Around the middle of each month, 8:30am EST, covers previous month data. This economic indicator tracks how many new single-family homes or buildings were constructed throughout the month. For the survey each house and each single apartment are counted as one housing start. This indicator isn't a huge market mover, but it has been reported by U.S. Census that the housing industry represents over 25% of investment dollars and a 5% value of the overall economy. Housing starts are considered to be a leading indicator, meaning it detects trends in the economy looking forward. Declining housing starts show a slowing economy, while increases in housing activity can pull an economy out of a downturn.

GDP Price Deflator

Tue, 29 Apr 2008 22:30:58 -0700

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GDP Price Deflator - BEA (Bureau of Economic Analysis); Last day of the quarter, 8:30am EST, covers previous quarter data. The GDP deflator shows how much a change in the base year's GDP relies upon changes in the price level. Also known as the "GDP implicit price deflator." Because it isn't based on a fixed basket of goods and services, the GDP deflator has an advantage over the consumer price index (CPI). Changes in consumption patterns or the introduction of new goods and services are automatically reflected in the deflator. This data is a medium importance indicator for markets.

Durable Goods

Tue, 29 Apr 2008 22:30:56 -0700

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Durable Goods - Bureau of Census; The fourth week of each month, 8:30am EST, covers previous month data. Durable Goods Orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. A durable good is defined as a good that lasts an extended period of time (over three years) during which its services are extended. Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term.

Current Account

Tue, 29 Apr 2008 22:30:53 -0700

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Current Account - BEA (Bureau of Economic Analysis); Quarterly, around six weeks after quarter end. BEA (Bureau of Economic Analysis); Quarterly, around six weeks after quarter end. The difference between a nation's total exports of goods, services, and transfers, and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities. The level of the current account is followed as an indicator of trends in foreign trade so it is considered as a big market mover.

Composite Index of Leading Indicators

Tue, 29 Apr 2008 22:30:42 -0700

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Composite Index of Leading Indicators - The Conference Board; Around the 20th of each month, 10:00am EST. An index used to predict the direction of the economy's movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. These 10 components include:

1. the average weekly hours worked by manufacturing workers;
2. the average number of initial applications for unemployment insurance;
3. the amount of manufacturers' new orders for consumer goods and materials;
4. the speed of delivery of new merchandise to vendors from suppliers;
5. the amount of new orders for capital goods unrelated to defense;
6. the amount of new building permits for residential buildings;
7. the S&P 500 stock index;
8. the inflation-adjusted monetary supply (M2);
9. the spread between long and short interests rates;
10. consumer's sentiment.

By looking at the Composite Index of Leading Indicators in the light of business cycles and general economic conditions, investors and businesses can form expectations about what's ahead, and make better-informed decisions. It has medium importance, as its components are already known at the time of its publication.

Budget Statement Monthly

Tue, 29 Apr 2008 22:12:45 -0700

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Budget Statement Monthly - A monthly report by US government (the Treasury department), showing the monthly budget deficit or surplus. The level of deficit/surplus affects the level of US bonds issues by the government, hence – their price. In addition, this report reflects the level of tax collected by the government, which is evident to the activity level of the economy. In such regard, the April report (the yearly tax remittance moth) is even more important than other months’ reports.

PCE - Personal Consumption Expenditure

Tue, 29 Apr 2008 22:12:43 -0700

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PCE - Personal Consumption Expenditure - BEA (Bureau of Economic Analysis); Last day of each month, 8:30am EST, covers previous month data. PCE is a of price changes in consumer goods and services. The PCE is a fairly predictable report that has usually little impact on the markets. The Core PCE, which is the index less prices of food and energy estimates inflationary trend more precisely.

ECI - Employment Cost Index

Tue, 29 Apr 2008 22:12:40 -0700

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ECI - Employment Cost Index: Bureau of Labor and Statistics; The last Thursday of Apr, Jul, Nov and Jan, 8:30am EST, covers previous quarter data. The ECI tracks movement in the cost of labor which includes wages, fringe benefits, and bonuses for employees at all levels of involvement in the companies. The Bureau of Labor surveys over 3,000 private sector firms and over 500 local governments, schools and other public sector organizations. This indicator isn't the most watched, but it is among a select group of indicators that have enough power to move the markets, especially during inflationary times. The idea behind the ECI is that as wage pressures increase so does inflation. This is mainly because compensation tends to increase before companies increase prices for consumers (inflation).

Beige Book

Tue, 29 Apr 2008 22:12:38 -0700

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Beige Book - Federal Reserve Board; Two Wednesdays before every FOMC meeting, 8 times per year, 2:15pm EST. Beige book is the commonly used term for the Fed report entitled: "Summary of Commentary on Current Economic Conditions by Federal Reserve District". It is published just before the FOMC meeting on interest rates and is used to inform the members on changes in the economy since the last meeting. This report is published eight times per year. The Beige Book isn't considered to be a big market mover. It is a gauge on the strength of the economy and not a commentary on the views of Fed members. Occasionally it can move markets if the findings are a big surprise from analyst expectations.

Trade Balance

Tue, 29 Apr 2008 22:12:33 -0700

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Trade Balance: Department of Commerce; The second week of each month, 8:30am EST, covers month before previous data. The largest component of a country's balance of payments. The balance of trade measures difference between the value of goods and services that a nation exports and the value of goods and services that it imports. A country has a trade deficit if it imports more than it exports, and the opposite scenario is a trade surplus. It is considered as a very big market mover.