Economic indicators are snippets of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy's pulse - so it's no surprise that they're religiously followed by almost everyone in the financial markets.
Definition
A composite diffusion index of national manufacturing conditions. This survey is less well
known than the ISM, but can also indicate trends in production. An index level of 50
means no growth, but every 10 points signals gains of 4% in manufacturing.
Why do Investors Care?
Investors need to monitor the economy closely because it usually dictates how various
types of investments will perform. The stock market likes to see healthy economic
growth because that translates to higher corporate profits. The bond market prefers less
robust growth and is extremely sensitive to whether the economy is growing too quickly,
which could set the stage for inflation.
The APICS survey gives a detailed look at the manufacturing sector. The diffusion index
does not move in tandem with the ISM index every month, but sometimes the two do
move in the same direction. Since manufacturing is a major sector of the economy,
investors can get a feel for the general economic backdrop for various investments.
Definition
A two-week period that ends every other Wednesday during which commercial banks
must meet reserve requirements stipulated by the Federal Reserve.
Why do Investors Care?
This is primarily of interest to institutional investors and securities brokers who deal with
extremely short-term financing (borrowing or lending) to meet cash management needs.
For example, short term rates such as the overnight lending rate might be pressured
upward by heavy demand for funds in the final few days of the Bank Reserve Settlement
period.
Definition
The dollar amount of inventories held by manufacturers, wholesalers, and retailers. The
level of inventories in relation to sales is an important indicator of the near-term
direction of production activity.
Why do Investors Care?
Investors need to monitor the economy closely because it usually dictates how various
types of investments will perform. The stock market likes to see healthy economic
growth because that translates to higher corporate profits. The bond market prefers more
moderate growth that won't generate inflationary pressures.
Rising inventories can be an indication of business optimism that sales will be growing in
the coming months. By looking at the ratio of inventories to sales, investors can see
whether production demands will expand or contract in the near future. For example, if
inventory growth lags sales growth, then manufacturers will have to boost production lest
commodity shortages occur. On the other hand, if unintended inventory accumulation
occurs (that is, sales do not meet expectations), then production will probably have to
slow while those inventories are worked down. In this manner, the business inventory
data provide a valuable forward-looking tool for tracking the economy.
Definition
Monthly sales volumes from department, chain, discount, and apparel stores. Sales are
reported by the individual retailers. Chain store sales are an indicator of retail sales and
consumer spending trends.
Why do Investors Care?
The pattern of consumption spending is one of the foremost influences on stock and bond
markets. Strong economic growth translates into healthy corporate profits and higher
stock prices. The focus in the bond market is whether economic growth goes overboard
and leads to inflation. Ideally, the economy walks that fine line between strong growth
and excessive (inflationary) growth which is what happened through much of the
nineties. As a result, investors in the stock and bond markets have enjoyed huge gains. If
and when the party comes to an end, more than likely a change in the economic trend will
tip us off.
Consumer spending accounts for two-thirds of the economy, so if you know what
consumers are up to, you'll have a pretty good handle on where the economy is headed.
Needless to say, that's a big advantage for investors.
Chain store sales not only give you a sense of the big picture, but also the trends among
individual retailers and different store categories. Perhaps the discount chains such as
Target and K-mart are doing well, but the high-end department stores are lagging. Maybe
apparel specialty retailers are showing exceptional growth. These trends from the
monthly chain store data can help you spot specific investment opportunities, without
having to wait for the quarterly or annual reports.
Just a few words of caution. Sales are reported as a change from the same month, a year
ago. It is important to know how strong sales actually were a year ago to make sense of
this year's sales. In addition, sales are usually reported for "comparable stores" in case of
company mergers.
Definition
The dollar value of new construction activity on residential, non-residential, and public
projects. Data are available in nominal and real (inflation-adjusted) dollars.
Why do Investors Care?
Since the economic backdrop is the most pervasive influence on financial markets,
construction spending has a direct bearing on stocks, bonds and commodities. In a more
specific sense, trends in the construction data carry valuable clues for the stocks of home
builders and large-scale construction contractors. Commodity prices such as lumber are
also very sensitive to housing industry trends.
Businesses only put money into the construction of new factories or offices when they are
confident that demand is strong enough to justify the expansion. The same goes for
individuals making the investment in a home. That's why construction spending is a good
indicator of the economy's momentum.
Definition
A survey of consumer attitudes concerning both the present situation as well as
expectations regarding economic conditions conducted by The Conference Board. Five
thousand consumers across the country are surveyed each month. The level of consumer
confidence is directly related to the strength of consumer spending.
Why do Investors Care?
Strong economic growth translates into healthy corporate profits and higher stock prices.
The bond market focus is whether economic growth goes overboard and leads to
inflation. Ideally, the economy walks that fine line between strong growth and excessive
(inflationary) growth, which is what happened through much of the nineties. As a result,
investors in the stock and bond markets have enjoyed huge gains. If and when the party
comes to an end, more than likely a change in the economic trend will be the culprit, and
that change might be tipped off by a change in consumer sentiment.
Consumer spending accounts for two-thirds of the economy, so the markets are always
dying to know what consumers are up to and how they might behave in the near future.
The more confident consumers are about the economy and their own personal finances,
the more likely they are to spend. With this in mind, it's easy to see how this index of
consumer attitudes gives insight to the direction of the economy. Just note that changes in
consumer confidence and retail sales don't move in tandem month by month.
est un indice calculé sur les ventes des grandes chaînes de distribution aux USA. L’indice, qui tient compte des informations de 80 chaînes, est publié chaque fin de semaine (donnée de la semaine précédente). Il est un important indicateur du niveau de la consommation privée.
Definition
The dollar value of consumer installment credit outstanding. Changes in consumer credit
indicate the state of consumer finances and portends future spending patterns.
Why do Investors Care?
Growth in consumer credit can hold positive or negative implications for the economy
and markets. Economic activity is stimulated when consumers borrow within their means
to buy cars and other major purchases. On the other hand, if consumers pile up too much
debt relative to their income levels, they may have to stop spending on new goods and
services just to pay off old debts. That could put a big dent in economic growth.
The demand for credit also has a direct bearing on interest rates. If the demand to borrow
money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and
many willing lenders are fighting for customers, they may offer lower interest rates to
attract business.
Financial market players focus less attention on this indicator because it is reported with a
long lag relative to other consumer information. Long term investors who do pay
attention to this report will have a greater understanding of consumer spending ability.
This will give them a lead on investment alternatives.
Definition
A survey of consumer attitudes concerning both the present situation as well as
expectations regarding economic conditions conducted by the University of Michigan.
Five hundred consumers are surveyed each month. The level of consumer sentiment is
directly related to the strength of consumer spending.
Why do Investors Care?
Strong economic growth translates into healthy corporate profits and higher stock prices.
The bond market focus is whether economic growth goes overboard and leads to
inflation. Ideally, the economy walks that fine line between strong growth and excessive
(inflationary) growth, which is what happened through much of the nineties. As a result,
investors in the stock and bond markets have enjoyed huge gains. If and when the party
comes to an end, more than likely a change in the economic trend will be the culprit, and
that change might be tipped off by a change in consumer sentiment.
Consumer spending accounts for two-thirds of the economy, so the markets are always
dying to know what consumers are up to and how they might behave in the near future.
The more confident consumers are about the economy and their own personal finances,
the more likely they are to spend. With this in mind, it's easy to see how this index of
consumer attitudes gives insight to the direction of the economy. Just note that changes in
consumer sentiment and retail sales don't move in tandem month by month.
Definition
The Consumer Price Index is a measure of the average price level of a fixed basket of
goods and services purchased by consumers. Monthly changes in the CPI represent the
rate of inflation.
Why do Investors Care?
The consumer price index is the most widely followed indicator of inflation in the United
States. Just knowing what inflation is and how it influences the markets can put an
individual investor head and shoulders above the crowd.
Inflation is a general increase in the price of goods and services. The relationship
between INFLATION and INTEREST RATES is the key to understanding how data like
the CPI influence the markets ( and your investments.)
If someone borrows $100 dollars from you today and promises to repay it in one year
with interest, how much interest should you charge? The answer depends largely on
inflation, because you know that the $100 won't be able to buy the same amount of goods
and services a year from now, as it does today. If you were in Brazil where prices can
double every couple of months, you might want to charge 400% interest for a total payoff
of $500 at the end of the year. In the United States, the CPI tells us that prices are rising
about 2% a year, so you only have to charge 2% interest to recoup your purchasing power
at the end of the year. You might want to add in a few more percentage points for default
risk and the opportunity cost, but the key variable in what interest rate you charge is the
rate of inflation.
That basically explains how interest rates are set on everything from your mortgage and
auto loans to Treasury bonds and T-bills. As the rate of inflation changes and as
expectations on inflation change, the markets adjust interest rates accordingly. The effect
ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic
fashion.
By tracking the trends in inflation, whether high or low, rising or falling, investors can
anticipate how different types of investments will perform.
Definition
A measure of the country's international trade balance in goods, services, and unilateral
transfers. The level of the current account, as well as trends in exports and imports, are
followed as indicators of trends in foreign trade.
Why do Investors Care?
U.S. trade with foreign countries hold important clues to economic trends here and
abroad. The data can directly impact all the financial markets, but especially the foreign
exchange value of the dollar.
The dollar can be particularly sensitive to changes in the chronic trade deficit run by the
United States since this trade imbalance creates greater demand for foreign currencies.
The bond market is sensitive to the risk of importing inflation or deflation. Ever since
Asian economies collapsed at the end of 1997, financial market participants have feared
that deflation in these economies would be transported to the United States. The linkage
is not so direct, and deflationary pressures are not so likely at this time.
Definition
Durable goods orders reflect the new orders placed with domestic manufacturers for
immediate and future delivery of factory hardgoods.
Why do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates
how various types of investments will perform. The stock market likes to see healthy
economic growth because that translates to higher corporate profits. The bond market
doesn't mind growth but is extremely sensitive to whether the economy is growing too
quickly and paving the road for inflation. By tracking economic data like durable goods
orders, investors will know what the economic backdrop is for these markets and their
portfolios.
Orders for durable goods show how busy factories will be in the months to come, as
manufacturers work to fill those orders. The data not only provides insight to demand for
things like refrigerators and cars, but also business investment going forward. If
companies commit to spending more on equipment and other capital, they are obviously
experiencing sustainable growth in their business. Increased expenditures on investment
goods sets the stage for greater productive capacity in the country and reduces the
prospects for inflation. That tells investors what to expect from the manufacturing sector,
a major component of the economy and therefore a major influence on their investments.
Definition
The number of previously constructed homes with a closed sale during the month.
Existing homes (also known as home resales) are a larger share of the market than new
homes and indicate housing market trends.
Why do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum.
People have to be feeling pretty comfortable and confident in their own financial position
to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect
through the economy, and therefore across the markets and your investments. By tracking
economic data such as home resales, investors can gain specific investment ideas as well
as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it
generates revenues for the realtor. It brings a myriad of consumption opportunities for the
buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers
might purchase. The economic "ripple effect" can be substantial especially when you
think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home
resales have a direct bearing on stocks, bonds and commodities. In a more specific sense,
trends in the existing home sales data carry valuable clues for the stocks of home
builders, mortgage lenders and home furnishings companies.
Definition
The dollar level of new orders for manufacturing durable and nondurable goods. It gives
more complete information than durable goods orders which is reported one or two
weeks earlier in the month.
Why do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates
how various types of investments will perform. The stock market likes to see healthy
economic growth because that translates to higher corporate profits. The bond market
prefers more moderate growth which is less likely to cause inflationary pressures. By
tracking economic data like factory orders, investors will know what the economic
backdrop is for these markets and their portfolios.
The orders data show how busy factories will be in coming months as manufacturers
work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In
addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in
production. Shipments reveal current sales. Inventories give a handle on the strength of
current and future production. All in all, this report tells investors what to expect from the
manufacturing sector, a major component of the economy and therefore a major influence
on their investments.
Definition
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity
and encompasses every sector of the economy.
Why do Investors Care?
GDP is the consummate measure of economic activity. Investors need to closely track the
economy because it usually dictates how investments will perform. The stock market
likes to see healthy economic growth because that translates to higher corporate profits.
The bond market doesn't mind growth but is extremely sensitive to whether the economy
is growing too quickly and paving the road to inflation. By tracking economic data like
GDP, investors will know what the economic backdrop is for these markets and their
portfolios.
The GDP report contains a treasure-trove of information which not only paints an image
of the overall economy, but tells investors about important trends within the big picture.
GDP components like consumer spending, business and residential investment, and price
(inflation) indexes illuminate the economy's undercurrents, which can translate to
investment opportunities and guidance in managing a portfolio.
Definition:
The harmonised index of consumer prices (HICP) is an internationally comparable
measure of inflation calculated by each Member State of the European Union. HICPs are
used to compare inflation rates across the European Union. Since January 1999, they
have been used by the European Central Bank as the target measure of inflation for the
Member States of the Eurozone. Increasingly, HICPs are being used for indexing
contracts which cover more than one EU Member State.
Why were they developed?
National consumer price indices within Europe, such as the RPI, vary considerably in
terms of their coverage of goods and services and in the rules underlying their
construction. This can impact on the measured rates of inflation. In response to this, and
as a requirement of the Maastricht Treaty, Eurostat - the statistical office of the European
Union - in conjunction with the National Statistical Offices of EU Member States, developed the HICP as a comparable measure of inflation. HICP inflation rates for all
Member States are available from January 1997.
How is the HICP different from the RPI?
Although, the same price data are used for both HICP and RPI and the methodologies
used are similar, the rules underlying the construction of the HICP are specified in a
series of European Regulations and it differs from the RPI in the following ways:
- In the HICP, the geometric mean is used to aggregate the prices at the most basic level
whereas the RPI uses arithmetic means.
- A number of RPI series are excluded from the HICP, most particularly, those mainly
relating to owner occupiers' housing costs (eg mortgage interest payments, house
depreciation, council tax and buildings insurance).
- The coverage of the HICP indices is based on the international classification system,
COICOP which differs from the RPI groupings.
- The HICP includes series for air fares, university accommodation fees, foreign students'
university tuition fees, unit trust and stockbrokers charges, none of which are included in
the RPI.
- The index for new cars in the RPI is imputed from movements in second hand car
prices, whereas the HICP uses a quality adjusted index based on published prices of new
cars.
- The HICP weights are based on expenditure by all private households, foreign visitors
to the UK and residents of institutional households. In the RPI, weights are based on
expenditure by private households only, excluding the highest income households,
institutional households and pensioner households mainly dependent on state benefits.
- In the construction of the RPI weights, expenditure on insurance is assigned to the
relevant insurance heading. For the HICP weights, the amount paid out in insurance
claims is distributed amongst the COICOP headings according to the nature of the claims
expenditure with the residual (ie the service charge) being allocated to the relevant
insurance heading.
Definition
Housing starts measure the number of residential units on which construction is begun
each month.
Why do Investors Care?
Two words...Ripple Effect. This narrow piece of data has a powerful multiplier effect
through the economy, and therefore across the markets and your investments. By tracking
economic data such as housing starts, investors can gain specific investment ideas as well
as broad guidance for managing a portfolio.
Home builders don't start a house unless they are fairly confident it will sell upon or
before its completion. Changes in the rate of housing starts tell us a lot about demand for
homes and the outlook for the construction industry. Furthermore, each time a new home
is started, construction employment rises, and income will be pumped back into the
economy. Once the home is sold, it generates revenues for the home builder and a myriad
of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture,
and landscaping are just a few things new home buyers might spend money on, so the
economic "ripple effect" can be substantial especially when you think of it in terms of a
hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets,
housing starts have a direct bearing on stocks, bonds and commodities. In a more specific
sense, trends in the housing starts data carry valuable clues for the stocks of home
builders, mortgage lenders, and home furnishings companies. Commodity prices such as
lumber are also very sensitive to housing industry trends.
The Ifo Business Climate Index is a widely observed early indicator for economic
development in Germany. Every month the Ifo Institute surveys more than 7,000
enterprises in west and east Germany on their appraisals of the business situation ('good' /
'satisfactory' / 'poor') and their expectations for the next six months ('better' / 'same' /
'worse'). The replies are weighted according to the importance of the industry and
aggregated. The percentage shares of the positive and negative responses to both
questions are balanced, and a geometric mean is formed from the balances, divided
according to east and west Germany. The series of balances thus derived are linked to a
base year (currently 1991) and seasonally adjusted.
In addition to the index values, the Ifo Institute also published the original balances of the
Ifo Business Climate.
The Ifo Business Climate balances can fluctuate between extreme values of -100 (i.e., all
responding firms appraise their situation as poor or expect business to become worse) and
+100 (i.e., all responding firms assessed their situation as good or expect an improvement
in their business). In actual fact, the balances fluctuate around the zero value, the
fluctuations being considerably smaller (even the negative ones) than the index values,
which start from a base of 100.
An example to illustrate how the balance values are calculated:
Of 100 responding firms, 40% appraise their business situation as satisfactory, 35% as
good and 25% as poor. The firms that assessed their situation as satisfactory are
considered to be "neutral" and do not affect the results of the business-situation appraisal.
The two remaining percentage values (35 - 25) are now balanced. The resulting value of
10 is the business-situation appraisal, i.e. the first component of the business climate in
the form of a balance. The six-month expectations are calculated the same way. When
this value has been determined, the geometric mean is formed from the situation and
expectations appraisal. This geometric mean is the Ifo Business Climate balance for the
individual month.
Definition
The prices of goods that are bought in the United States but produced abroad and the
prices of goods sold abroad but produced domestically. These prices indicate inflationary
trends in internationally traded products.
Why do Investors Care?
Changes in import and export prices are a valuable gauge of inflation here and abroad.
Furthermore, the data can directly impact the financial markets such as bonds and the
dollar. The bond market is especially sensitive to the risk of importing inflation because it
erodes the value of the principal (the original investment) which is paid back when the
bond matures. It also decreases the value of the steady stream of interest rate payments on
this type of security.
Inflation leads to higher interest rates and that's bad news for stocks, as well. By
monitoring inflation gauges such as import prices, investors can keep an eye on this
menace to their portfolio.
Definition
The Index of Industrial Production is a chain-weight measure of the physical output of
the nation's factories, mines and utilities. The capacity utilization rate reflects the usage
of available resources.
Why do Investors Care?
Investors want to keep their finger on the pulse of the economy because it usually dictates
how various types of investments will perform. The stock market likes to see healthy
economic growth because that translates to higher corporate profits. The bond market
prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data like industrial production, investors will know what the economic
backdrop is for these markets and their portfolios.
Industrial production shows how much factories, mines and utilities are producing. Since
the manufacturing sector accounts for one-quarter of the economy, this report has a big
influence on market behavior. The capacity utilization rate provides an estimate of how
much factory capacity is in use. If the utilization rate gets too high (above 85%) it can
lead to inflationary bottlenecks in production. The Federal Reserve watches this report
closely and sets interest rate policy on the basis of whether production constraints are
threatening to cause inflationary pressures. As such, the bond market can be highly
sensitive to this report.
Definition
International Trade measures the difference between imports and exports of both
tangible goods and services. The level of the international trade balance, as well as
changes in exports and imports, indicate trends in foreign trade.
Why do Investors Care?
Changes in the level of imports and exports, along with the difference between the two
(the trade balance) are a valuable gauge of economic trends here and abroad.
Furthermore, the data can directly impact all the financial markets, but especially the
foreign exchange value of the dollar.
Imports indicate demand for foreign goods and services here in the U.S. Exports show the
demand for U.S. goods in overseas countries. The dollar can be particularly sensitive to
changes in the chronic trade deficit run by the United States, since this trade imbalance
creates greater demand for foreign currencies. The bond market is also sensitive to the
risk of importing inflation. This report gives a breakdown of U.S. trade with major
countries as well, so it can be instructive for investors who are interested in diversifying
globally. For example, a trend of accelerating exports to a particular country might signal
economic strength and investment opportunities in that country.
Definition
Formerly known as the NAPM. Change was effective in January 2002. ISM is a
composite diffusion index of national manufacturing conditions. Readings above 50%
indicate an expanding factory sector.
Why do Investors Care?
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM,
investors will know what the economic backdrop is for the various markets. The stock
market likes to see healthy economic growth because that translates to higher corporate
profits. The bond market prefers less rapid growth and is extremely sensitive to whether
the economy is growing too quickly and causing potential inflationary pressures.The ISM gives a detailed look at the manufacturing sector, how busy it is and where
things are headed. Since the manufacturing sector is a major source of cyclical variability
in the economy, this report has a big influence on the markets. More than one of the ISM
sub-indexes provide insight on commodity prices and clues regarding the potential for
developing inflation. The Federal Reserve keeps a close watch on this report which helps
it to determine the direction of interest rates when inflation signals are flashing in these
data. As a result, the bond market is highly sensitive to this report.
Definition
A weekly compilation of the number of individuals who filed for unemployment insurance
for the first time. This indicator, and more importantly, its four-week moving average,
portends trends in the labor market.
Why do Investors Care?
Jobless claims are an easy way to gauge the strength of the job market. The fewer people
filing for unemployment benefits, the more have jobs, and that tells investors a great deal
about the economy. Nearly every job comes with an income which gives a household
spending power. Spending greases the wheels of the economy and keeps it growing, so
the stronger the job market, the healthier the economy.
There's a downside to it, though, which is relevant these days. Unemployment claims,
and therefore the number of job seekers, can fall to such a low level that businesses have
a tough time finding new workers. They might have to pay overtime to current staff, use
higher wages to lure people from other jobs, and in general spend more on labor costs
because of a shortage of workers. This leads to wage inflation which is bad news for the
stock and bond markets. Federal Reserve chairman Alan Greenspan talks about it all the
time and watches for it constantly.
By tracking the number of jobless claims, investors can gain a sense of how tight the job
market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and
stock prices will fall, and the only investors in a good mood will be the ones who tracked
jobless claims and adjusted their portfolios to anticipate these events.
Just remember, the lower the number of unemployment claims, the stronger the job
market, and vice versa.
Definition
A composite index of ten economic indicators that typically lead overall economic
activity.
Why do Investors Care?
Investors need to keep their fingers on the pulse of the economy because it dictates how
various types of investments will perform. By tracking economic data like the index of
leading indicators, investors will know what the economic backdrop is for the various
markets. The stock market likes to see healthy economic growth because that translates to
higher corporate profits. The bond market prefers less rapid growth and is extremely
sensitive to whether the economy is growing too quickly-and causing potential
inflationary pressures.
The index of Leading Indicators is designed to predict turning points in the economy such
as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in
this index.
Definition
The monetary aggregates are alternative measures of the money supply by degree of
liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as
well as the outlook for economic activity and inflationary pressures.
Why do Investors Care?
To be honest, the various money supply measures don't matter to most investors these
days. The monetary aggregates (known individually as M1, M2, and M3) used to be all
the rage a few years back because the data revealed the Fed's (tight or loose) hold on
credit conditions in the economy. The Fed issues target ranges for money supply growth.
In the past, if actual growth moved outside those ranges it often was a prelude to an
interest rate move from the Fed. Today, monetary policy is understood more clearly by
the level of the federal funds rate.
Money supply fell out of vogue in the nineties, due to a variety of changes in the financial
system and the way the Federal Reserve conducts monetary policy. The Fed is working
on some new measures of money supply, and given the way economic indicators ebb and
flow in popularity, don't be surprised if the monetary aggregates make a comeback in the
future.
Definition
The number of newly constructed homes with a committed sale during the month. The
level of new home sales indicates housing market trends.
Why do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum.
People have to be feeling pretty comfortable and confident in their own financial position
to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect
through the economy, and therefore across the markets and your investments. By tracking
economic data such as new home sales, investors can gain specific investment ideas as
well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs,
and income which will be pumped back into the economy. Once the home is sold, it
generates revenues for the home builder and the realtor. It brings a myriad of
consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are
just a few items new home buyers might purchase. The economic "ripple effect" can be
substantial especially when you think a hundred thousand new households around the
country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, new
home sales have a direct bearing on stocks, bonds and commodities. In a more specific
sense, trends in the new home sales data carry valuable clues for the stocks of home
builders, mortgage lenders and home furnishings companies.
Definition
The employment situation is a set of labor market indicators. The unemployment rate
measures the number of unemployed as a percentage of the labor force. Nonfarm payroll
employment counts the number of paid employees working part-time or full-time in the
nation's business and government establishments. The average workweek reflects the
number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic
hourly rate for major industries as indicated in nonfarm payrolls.
Why do Investors Care?
If ever there was an economic report that can move the markets, this is it! The
anticipation on Wall Street each month is palpable, the reactions are dramatic, and the
information for investors is invaluable. By digging just a little deeper than the headline
unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days
surrounding this report.
The employment data give the most comprehensive report on how many people are
looking for jobs, how many have them, what they're getting paid and how many hours
they are working. These numbers are the best way to gauge the current state and future
direction of the economy. They also provide insight on wage trends, and wage inflation is
high on the list of enemies for the Federal Reserve. Fed chairman Alan Greenspan talks
about this data frequently and watches for inflation constantly.
By tracking the jobs data, investors can sense the degree of tightness in the job market. If
wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices
will fall. No doubt that the only investors in a good mood will be the ones who watched
the employment report and adjusted their portfolios to anticipate these events.
Definition
Personal income is the dollar value of income received from all sources by individuals.
Personal outlays include consumer purchases of durable and nondurable goods, and
services.
Why do Investors Care?
The income and outlays data are another handy way to gauge the strength of the economy
and where it is headed. Income gives households the power to spend and/or save.
Spending greases the wheels of the economy and keeps it growing. Savings are often
invested in the financial markets and can drive up the prices of stocks and bonds. Even if
savings simply go into a bank account, part of those funds are typically used by the bank
for lending and therefore contribute to economic activity. The only way savings fail to
contribute is if they are deposited in the First National Bank of Serta (under the mattress),
and not too many people do that anymore.
The consumption (outlays) part of this report is even more directly tied to the economy,
which we know usually dictates how the markets perform. Consumer spending accounts
for two-thirds of the economy, so if you know what consumers are up to, you'll have a
pretty good handle on where the economy is headed. Needless to say, that's a big
advantage for investors.
Definition
A composite diffusion index of manufacturing conditions within the Philadelphia Federal
Reserve district. This survey is widely followed as an indicator of manufacturing sector
trends since it is correlated with the NAPM survey and the index of industrial production.
Why do Investors Care?
Investors need to monitor the economy closely because it usually dictates how various
types of investments will perform. By tracking economic data such as the Philly Fed
survey, investors will know what the economic backdrop is for the various markets. The
stock market likes to see healthy economic growth because that translates to higher
corporate profits. The bond market prefers more moderate growth which won't lead to
inflation.
The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is
and where things are headed. Since manufacturing is a major sector of the economy, this
report has a big influence on market behavior. Some of the Philly Fed sub-indexes also
provide insight on commodity prices and other clues on inflation. The bond market is
highly sensitive to this report because it is released early in the month and is available
before other important indicators.
Definition
The Producer Price Index (PPI) is a measure of the average price level for a fixed basket
of capital and consumer goods paid by producers.
Why do Investors Care?
The PPI measures price changes in the manufacturing sector. Inflation at this producer
level often gets passed through to the consumer price index (CPI). By tracking price
pressures in the pipeline, investors can anticipate inflationary consequences in coming
months. Investors need to monitor inflation closely. Just knowing what inflation is and
how it influences the markets can put an individual investor head and shoulders above the
crowd.
Inflation is a general increase in the prices of goods and services. The relationship
between INFLATION and INTEREST RATES is the key to understanding how data like
the PPI influence the markets ( and your investments.)
If someone borrows $100 dollars from you today and promises to repay it in one year
with interest, how much interest should you charge? The answer depends largely on
inflation, because you know that the $100 won't be able to buy the same amount of goods
and services a year from now, as it does today. If you were in Brazil where prices can
double every couple of months, you might want to charge 400% interest for a total payoff
of $500 at the end of the year. In the United States, the CPI tells us that prices are rising
about 2% a year, so you only have to charge 2% interest to recoup your purchasing power
at the end of the year. You might want to add in a few more percentage points for default risk and the opportunity cost, but the key variable in what interest rate you charge is the
rate of inflation.
That basically explains how interest rates are set on everything from your mortgage and
auto loans to Treasury bonds and T-bills. As the rate of inflation changes and as
expectations on inflation change, the markets adjust interest rates accordingly. The effect
ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic
fashion.
By tracking the trends in inflation, whether high or low, rising or falling, investors can
anticipate how different types of investments will perform.
Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods
Why do Investors Care?
Consumer spending accounts for two-thirds of the economy, so if you know what
consumers are up to, you'll have a pretty good handle on where the economy is headed.
Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond
markets. For stocks, strong economic growth translates to healthy corporate profits and
higher stock prices. For bonds, the focus is whether economic growth goes overboard and
leads to inflation. Ideally, the economy walks that fine line between strong growth and
excessive (inflationary) growth, and that's just what has happened through much of the
nineties. For this reason alone, investors in the stock and bond markets have enjoyed
huge gains this decade. If and when the party comes to an end, more than likely a change
in the economic trend will tip us off.
Retail sales not only give you a sense of the big picture, but also the trends among
different types of retailers. Perhaps auto sales are especially strong or apparel sales are
showing exceptional weakness. These trends from the retail sales data can help you spot
specific investment opportunities, without having to wait for a company's quarterly or
annual report.
What is the Retail Prices Index?
The Retail Prices Index is the UK's principal measure of consumer price inflation. It is
defined as an average measure of change in the prices of goods and services bought for
the purpose of consumption by the vast majority of households in the UK. It is compiled
and published monthly. Once published, it is never revised.
What is it used for?
Measures of inflation are vital tools for economists, business and government. The Bank
of England's Monetary Policy Committee sets UK interest rates on the basis of a target
figure for inflation set by the Chancellor of the Exchequer. Wage agreements, pensions
and changes in benefit levels are often linked directly to the RPI. Utility regulators
impose restrictions on price movements based on the RPI. RPIX (all items RPI excluding
mortgage interest payments) is the main economic measure used by HM Treasury and the
Bank of England.
Which items are included in the Retail Prices Index?
The RPI includes data on food and drink, tobacco, housing, household goods and
services, personal goods and services, transport fares, motoring costs, clothing and leisure
goods and services. A list of price indicators used in the construction of each year's RPI is
available from the website.
Who gathers the prices?
Prices are collected in two ways. The local price collection is carried out by a market
research firm who collect over 130,000 prices per month. ONS has procedures in place to
quality assure the local price collection carried out by the contractors.
ONS staff collect a further 10,000 prices centrally each month for a number of reasons
including efficiency (e.g. prices in catalogues, national newspaper prices, utility prices),
availability (e.g. prices that may not be available in retail areas such as sea fares, road
tolls, internet prices), prices that are methodologically difficult to measure (e.g. mortgage
interest payments) and items where quality adjustments may be important (e.g. personal
computers).
Definition
The employment situation is a set of labor market indicators. The unemployment rate
measures the number of unemployed as a percentage of the labor force. Nonfarm payroll
employment counts the number of paid employees working part-time or full-time in the
nation's business and government establishments. The average workweek reflects the
number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic
hourly rate for major industries as indicated in nonfarm payrolls.
Why do Investors Care?
If ever there was an economic report that can move the markets, this is it! The
anticipation on Wall Street each month is palpable, the reactions are dramatic, and the
information for investors is invaluable. By digging just a little deeper than the headline
unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days
surrounding this report.
The employment data give the most comprehensive report on how many people are
looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state and future
direction of the economy. They also provide insight on wage trends, and wage inflation is
high on the list of enemies for the Federal Reserve. Fed chairman Alan Greenspan talks
about this data frequently and watches for inflation constantly.
By tracking the jobs data, investors can sense the degree of tightness in the job market. If
wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices
will fall. No doubt that the only investors in a good mood will be the ones who watched
the employment report and adjusted their portfolios to anticipate these events.
The ZEW works in the field of user-related empirical economic research. In this context
it particularly distinguished itself nationally and internationally by analysing
internationally comparative issues in the European context and by compiling
scientifically important data bases.
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