Finspreads has compiled the following
glossary of terms for economic indicators:
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J K L
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O P
Q R
S T U
V W
X Y Z
Car sales are tremendously important to the US economy but their
volatility can make them an unreliable indicator. New models
introduced at the end of summer and in early spring tend to have a
disproportionate influence on sales figures. That said, strong
figures are a good sign that consumer demand is picking up. They
can be seen as indicating higher future production if demand is
sustained over three or four months. The size of the item in
question and the timeliness of the release allow auto sales to be a
useful leading indicator of retail sales and personal consumption
expenditures data.
Release Date: Around the 13th of
each month
Release Time: 13:30 GMT
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The Balance of Payments (BOP) is the method countries use to
monitor all international monetary transactions at a specific
period of time. Usually, the BOP is calculated every quarter and
every calendar year. All trades conducted by both the private and
public sectors are accounted for in the BOP in order to determine
how much money is going in and out of a country. If a country has
received money, this is known as a credit, and, if a country has
paid or given money, the transaction is counted as a debit.
Theoretically, the BOP should be zero, meaning that assets
(credits) and liabilities (debits) should balance. But in practice
this is rarely the case and, thus, the BOP can tell the observer if
a county has a deficit or a surplus and from which part of the
economy the discrepancies are stemming.
The largest component of a country's balance of payments. It is
the difference between exports and imports. Debit items include
imports, foreign aid, domestic spending abroad and domestic
investments abroad. Credit items include exports, foreign spending
in the domestic economy, and foreign investments in the domestic
economy. The US merchandise trade balance has been in a deficit
since the mid-1970s. Rising deficits can be reflective of increased
consumption, which can be a sign of a strengthening economy.
Release Date: Around the 12th of
each month
Release Time: 13:30 GMT
Officially known as the Survey on Current Economic Conditions,
the Beige Book is published eight times per year by a Federal
Reserve Bank, containing anecdotal information on current economic
and business conditions in its District through reports from Bank
and Branch directors, and interviews with key business contacts,
economists, market experts, and other sources. The Beige Book
highlights the activity information by District and sector. The
survey normally covers a period of about 4-weeks in duration, and
is released two weeks prior to each FOMC meeting, which is also
held eight times per year. While being deemed by some as a lagging
report, the Beige Book has usually served as a helpful indicator to
FOMC policy decisions on monetary policy.
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.
Release Date: Two Wednesdays
before every FOMC meet. 8 times a yr
Release Time: 19:15 GMT
Business inventories and sales figures consist of data from
other reports such as durable goods orders, factory orders, retail
sales, and wholesale inventories and sales data. Inventories are an
important component of the GDP report because they help distinguish
which part of total output produced (GDP) remained unsold. As a
result, this presents us with important clues on the future
direction of the economy. Before computerization allowed companies
to trim inventories and use minimal stock on hand, inventory build
up was indicative of falling demand and potentially a recession. If
inventories decline significantly over a three month period it is
an indication that demand has picked up and that production will
have to increase to restock.
Release Date: Second Friday of
each month
Release Time: 13:30 GMT
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Measures how much of the productive potential of the economy is
being used. A level of 85% is a good balance of growth and
inflation; anything above this level raises inflationary fears.
Release Date: Around the 14th of
each month
Release Time: 13:30 GMT
Britains largest organisation of business employers, aims at
creating and sustaining favourable conditions for their optimal
competition and prosperity. The CBI publishes monthly and quarterly
surveys, on past, current and future assessments on the
manufacturing and services sectors. The indexes reflect respondents
views on various items such as, output, sales, prices, inventories,
and export/import orders.
Release Date: Around the 27th of
each month
Release Time: 11:00 GMT
A survey of Chicago-based managers which covers prices, durable
goods orders and inventories. It is closely-watched since it is
announced before the National Association of Purchasing Managers'
index (NAPM). The Chicago figure gives a good idea of what the
national figure will be.
Release Date: Around the end of
each month
Release Time: 15:00 GMT
Construction spending data comes out after most of the housing
data has already been released; its influence is therefore
diminished. The indicator sometimes shocks the market if it shows a
sudden pick-up in the amount spent on new home construction.
Release Date: Around the beginning
of each month
Release Time: 15:00 GMT
The Consumer Confidence Index (CCI) is put out by The Conference
Board. (There are others such as the Michigan Sentiment Index which
is put out monthly by the University of Michigan). The Consumer
Confidence Survey is based on a sample of 5,000 U.S. Households and
is considered one of the most accurate indicators of confidence. It
even goes as far as calculating the number of "help wanted" ads in
newspapers to detect how tight the job market is.
The idea behind consumer confidence is that when the economy
warrants more jobs, increased wages, and lower interest rates, it
increases our confidence and spending power. Should the index move
above or below the moving average it is a good indication that
consumer confidence is significant. Month to month changes are not
considered to have as great an impact as the overall trend.
Confidence is looked at closely by the Federal Reserve when
determining interest rates, which affect stock prices. Lowering
interest rates make it easier to borrow which ultimately supports
consumer spending and higher confidence - something the stock
markets love to hear. Keep in mind that lowering interest rates is
not an instantaneous confidence booster, it can take 6-8 months for
rate cuts to work their way into the economy. On the other hand, if
confidence is rising rapidly it could trigger higher inflation.
Release Date: Around the 25th of
each month
Release Time: 15:00 GMT
Consumer Credit is an indicator of consumer spending and demand.
It reflects the amount of credit Americans are using,
month-on-month, through credit card purchases, personal loans, hire
purchase orders or payment plans. A high consumer credit figure
suggests the US consumer is not concerned to run up bills in order
to finance his/her consumer demands. But the figure is often
revised and is seasonally volatile it goes up before Christmas. It
is therefore is given only cursory attention.
Release Date: Around 7th of each
month
Release Time: 20:00 GMT
The Consumer Price Index (CPI) is considered the most widely
used measure of inflation and is regarded as an indicator of the
effectiveness of government policy. The CPI is a basket of consumer
goods (and services) tracked from month to month (excluding taxes).
Items included reflect prices of food, clothing, shelter, fuels,
transportation, health care and all other goods and services that
people buy for day-to-day living. CPI figures are collected in 87
areas throughout the U.S. from over 22,000 retail and service
establishments. Rent paid by individuals is also collected from
50,000 landlords and tenants.
The CPI is one of the most followed economic indicators and
considered to be a big market mover. A rising CPI indicates
inflation, a large increase is something financial markets don't
like to hear. Inflation is the rate at which the general price for
goods and services is rising, and subsequently our purchasing power
is falling. As inflation rises this means that every dollar you own
will buy a less percentage of a good or service. The Federal
Reserve typically battles rising inflation by increasing short term
interest rates. Rising rates are frowned upon by corporations and
investors because the cost of borrowing money increases.
Release Date: Second Friday of
each month
Release Time: 13:30 GMT
The most important part of international trade data. It is the
broadest measure of sales and purchases of goods, services,
interest payments and unilateral transfers. The entire merchandise
trade balance is contained in the current account.
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These include large ticket items such as capital goods
(machinery, plant and equipment), transportation and defence
orders. They are extremely important in that they anticipate
changes in production and thus, signal turns in the economic
cycle.
But the large size of these items (aircrafts and civilian
orders) means that they present equally large changes, which makes
them extremely volatile. This also gives rise to sizeable revisions
in the subsequent periods once more complete data becomes available
one week later. Durable goods data are better used when omitting
defence orders and transportation orders, while calculating a
three-month moving average, and a year-to-year percent change.
Release Date: Around the 26th of
each month
Release Time: 13:30 GMT
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The Employment Cost Index is a quarterly survey of employer
payrolls in the final month of the quarter. The ECI tracks movement
in the cost of labour which includes wages, fringe benefits, and
bonuses for employees at all levels of involvement in the
companies. Wages and salaries make up approximately 75% of the
indexes value. The one benefit not included in the ECI is employee
stock options, which actually don't cost employers anything to
issue.
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).
The ECI is particularly useful when it's compared to inflation
and productivity growth rates. Ideally you would like to see wages
increase at a similar rate as inflation and productivity. If
employee costs are rising but productivity is not then it could
spell trouble for companies.
Release Date: The last Thursday of
Apr, Jul, Nov and Jan
Release Time: 13:30 GMT
The European Central Bank (ECB) and the national central banks
together constitute the Eurosystem, the central banking system of
the euro area. The main objective of the Eurosystem is to maintain
price stability: safeguarding the value of the euro.
Release Date: First Thursday of
each month
Release Time: 12:45 GMT
The number and value of old homes sold. Can give markets an
insight into the strength of consumer confidence and spending
power. Existing home sales also offer evidence of inflationary
pressure if prices are rising rapidly.
Release Date: Around the 25th of
each month
Release Time: 15:00 GMT
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In many respects this report is a rehash of the durable goods
release that became available a week earlier. However, the factory
orders report merits review because it also contains data on orders
and shipments of nondurable goods, manufacturing inventories, and
the inventory/sales ratio. Order data is useful because it tells us
something about the likely pace of production in the months ahead.
They are extremely volatile and can fluctuate by three or four
percent in any given month. They are subject to sizeable revisions
and are very difficult to forecast.
Release Date: Around the 4th of
each month
Release Time: 15:00 GMT
The body that sets the interest rate and credit policies of the
Federal Reserve System.
The FOMC is the most important monetary policymaking body of the
Federal Reserve System. The current chairman is Alan Greenspan.
The FOMC is composed of the seven members of the Board of
Governors and five Reserve Bank presidents. The president of the
Federal Reserve Bank of New York serves on a continuous basis,
while the presidents of the other Reserve Banks serve one-year
terms on a rotating basis.
Release Date: First Wednesday of
the month
Release Time: 19:15 GMT
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GDP is a gross measure of market activity. It represents the
monetary value of all the goods and services produced by an economy
over a specified period. This includes consumption, government
purchases, investments, and the trade balance (exports minus
imports). The GDP is perhaps the greatest indicator of the economic
health of a country. It is usually measured on a yearly basis, but
quarterly stats are also released. The Commerce Department releases
an "advance report" on the last day of each quarter. Within a month
it follows up with the "preliminary report" and then the "final
report" is released another month later.
The most recent GDP figures have a relatively high importance to
the markets. GDP indicates the pace at which a country's economy is
growing (or shrinking). If GDP growth fails to meet or beat the
market expectations stocks can temporarily pay the price.
Traditionally, the U.S. Economy's average growth rate has been
between 2.5 - 3%. Economists believe that this range represents the
sustainable long-run growth rate of output.
Release Date: Last day of the
Quarter
Release Time: 15:30 GMT
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An index published monthly by the Conference Board that shows
the total number of help-wanted advertisements occurring monthly in
51 major newspapers from around the country.
This is an indicator of strength in the labour markets. Large
numbers of ads imply that the labour market is strong and wages
will need to increase in order to attract more workers. In
contrast, if the number of ads are few, the labour market is weak
and wages will decrease as workers will be willing to accept lower
wages for jobs.
Release Date: Last Thursday of
each month
Release Time: 15:00
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, (a building with 200 apartments would be counted as 200
housing starts). The figures include all private and publicly owned
units, with the only exception being mobile homes which are not
counted. Most of the housing start data is collected through
applications and permits for building homes. The housing start data
is offered in an unadjusted and a seasonally adjusted format.
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. However,
a considerably stronger report is not good because it can be
interpreted that growth is extremely strong and could lead to high
inflation. The fact that housing is closely related to mortgage
rates means that housing starts data has a strong effect on the
bond market and predictions for interest rate movements. As
interest rates rise it is expected that housing starts will
decline.
Release Date: Around the middle of
the following month.
Release Time: 15:30 GMT
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Germanys leading survey of business conditions. Published
monthly by the Institute for Economic Research, one of the largest
economic think tanks in Germany, the IFO Business Climate Index is
a widely followed leading indicator of economic activity known for
its track record in calling economic turns in German economic
growth. The index surveys over 7,000 enterprises on their
assessment of the current business situation and their resulting
plans for the short-term. In addition to this aforementioned
headline index, there is the Current Situation Index and Business
Expectations Index.
Release Date: Around the end of
each month
Release Time: 13:00 GMT
This is an important measure of the nation's industrial output.
It is expressed as a rate of change from the previous month, and
gives markets a good idea of the strength of the US manufacturing
sector. The index comprises data from the market and from
industrial sectors. The market grouping consists of final products
(consumer goods, business equipment, and construction supplies),
intermediate products and materials. The industrial grouping covers
manufacturing (divided into durable and non-durable goods), mining
and utilities.
Changes in industrial production are a significant indicator of
manufacturing sector trends. However, from month to month the
figures can be volatile. With this in mind it is better to follow
either the three-month moving average of the monthly change or
year-on-year changes.
Release Date: The second Friday of
each month
Release Time: 14:15 GMT
The numbers are released each week by the US Department of
Labour and measure the weekly change in state applications for
unemployment benefits. The financial markets regard the report as a
good indicator of changing trends in the labour market and in the
economy as a whole.
However, the figures do not always represent a true picture of
economic trends. They are often distorted by short-term factors
such as state and federal holidays. Therefore, a longer-term moving
average of initial claims is a more reliable indicator.
Initial claims also give hints about the non-farm payroll. If
initial claims are down consistently over a month, there is a good
chance the non-farm payroll will come in high.
Release Date: Every Thursday
Release Time: 13:30 GMT
This is leading survey on US manufacturing activity. The report
is released on the first working day of the month, providing the
first detailed look at the manufacturing sector before the release
of the all-important employment report.
Highly valued for its timeliness and breadth of information, the
headline figure is a function of six major components: prices paid;
new orders; supplier deliveries; production, inventories and
employment. Note that the latter three components reflect supply
forces, while the former three cover demand forces. Watching the
relative trend of these two groups (demand and supply) sheds light
on the balance between demand and supply forces, and hence,
provides insight on the Federal Reserves policy decisions since
they lend much importance to these balances. The Prices Paid
component is widely watched because it assesses price pressures
ahead in the sector. A figure of 50 or above indicates expansion in
the sector, while a number below 50 suggest a contraction.
Release Date: First Thursday of
the month
Release Time: 15:00 GMT
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The leading indicator piles together already-announced data for
new orders, jobless claims, money supply, average workweek,
building permits, stock prices and durable goods. Its
predictability gives it a low grade.
Release Date: Beginning of the
month
Release Time: 13:30 GMT
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The Michigan consumer sentiment index is a survey of consumer
confidence conducted by the University of Michigan at a national
level. There are two reports a month: a preliminary released around
the 10th of the month for that month, and a final released on the
first of the next month for the prior month. The index is nothing
more than a snapshot of whether consumers feel like spending their
money or not.
Release Date: The second Friday of
each month
Release Time: 14:45 GMT
Interest rates are set by the Monetary Policy Committee.
The MPC studies all the available economic data and looks at a
range of domestic and international economic and monetary factors.
There is a briefing meeting prior to the MPC where presentations
are made to the MPC by the Bank's economists and its regional
agents.
The Bank's Monetary Policy Committee (MPC) is made up of the
Governor, the 2 Deputy Governors, the Bank's Chief Economist, the
Executive Director for Market Operations and 4 external members
appointed directly by the Chancellor.
Release Date: Wednesday / Thursday
at the beginning of the month
Release Time: Thursday 12 Noon
The entire quantity of a country's bills, coins, loans, credit,
and other liquid instruments in the economy.
Money supply is divided into three categories, M1, M2, and M3,
according to the type and size of account the instrument is kept
in. This number is important to economists trying to understand how
policies will affect interest rates and growth.
Release Date: Around the beginning
of each month
Release Time: 09:30 GMT
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Monthly data new home sales data are released for the nation as
a whole and for four geographical areas the Northeast, the Midwest,
the South, and the West. The report also contains information on
home prices, and number of houses for sale. Housing is a crucial
segment of the economy because it signals changes in consumer
spending patterns that are indicative of economic activity.
Volatility and revisions, however, are common in the report. The
report is seasonally variable. A four-month moving average or a
year-on-year measure is more useful.
Release Date: Around the 26th of
each month
Release Time: 15:00 GMT
Non-farm payroll (NFP) is a monthly survey of the number of new
jobs created. It is a very good indicator of the unemployment rate.
NFP is the market mover, the most closely-watched by all in the
bond and foreign exchange markets.
NFP is also seen as having a reasonable correlation with GDP
growth. There is a rule of thumb that a rise of 200,000 a month
equates to a rise of 3% in GDP.
Release Date: First Friday of each
month
Release Time: 15:30 GMT
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Personal consumption is an indication of the amount Americans
spend on goods and services in a given month. The number is
pre-empted by retail sales which tend to give a more thorough view
of similar expenditure.
Release Date: Around the end of
each month
Release Time: 13:30 GMT
Personal Spending, also known as PCE, represents the change in
the market value of all goods and services purchased by
individuals. It is the largest component of GDP. Personal income
represents the change in compensation that individuals receive from
all sources including: wages and salaries; proprietors income;
income from rents; dividends and interest; and transfer payments
(Social Security, unemployment, and welfare benefits). The release
of these two figures gives you the savings rate, which is the
difference between disposable income (personal income minus taxes)
and consumption, divided by disposable income. The ever-declining
savings rate has become a key indicator to watch as it signals
consumer spending patterns.
Release Date: Around the end of
each month
Release Time: 13:30 GMT
The Philadelphia Fed Index 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. They are asked questions regarding employment,
working hours, new and unfilled orders, shipments inventories,
delivery times, prices paid, and prices received. The survey has
been conducted each month since May 1968. The index signals
expansion when it is above zero and contraction when below. It
takes the difference between the number of positive and negative
responses: if 30% of manufacturers think prices will go up and 39%
think they will go down, the prices paid indicator would be 9.
The Philadelphia Fed Index is considered to be a good indicator
of changes in everything from employment, general prices, and
conditions within the manufacturing industry. Manufacturing is
considered to be a precursor to future economic conditions and it
lays the groundwork toward economic recovery. For example, in a
poor economy if manufacturing starts to pick up there is an
expectation that the economy will soon follow behind.
Release Date: Around the 17th of
each month
Release Time: 15:00 GMT
The Producer Price Index is not as widely used as the CPI, but
it is still considered to be a good indicator of inflation.
Formerly known as the "Wholesale Price Index", the PPI is a basket
of various indexes covering a wide range of areas affecting
domestic producers. The PPI includes industries such as goods
manufacturing, fishing, agriculture, and other commodities. Each
month approximately 100,000 prices are collected from 30,000
production and manufacturing firms.
There are three primary areas that make up the PPI. These are
industry-based, commodity-based, stage-of-processing goods.
The PPI is another important indicator which investors pay close
attention to. 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.
The PPI is also used extensively by company officials for
determining future supply or sales contracts. For example, a sudden
rise in the PPI could mean that future sales contracts will also
rise.
Release Date: Second Thursday of
the month
Release Time: 13:30 GMT
An indication of output per employee. While productivity is
helpful in the analysis of an economy, it is often misleading. This
is because a reduction in personnel can, at times of recession for
example, lead to an increase in productivity. Thus output per
employee may seem encouraging while overall economic performance is
declining.
The Index is widely used by industrialised economies to assess
business confidence. Germany, Japan and the UK use PMI surveys for
both manufacturing and services industries. The numbers are arrived
at through a series of questions regarding Business activity, New
Business, Employment, Input Prices, Prices Charged and Business
Expectations. In addition to the headline figures, the prices paid
components is highly scrutinized by the markets for evaluating
pricing power and inflationary risks. Also see National Association
of Purchasing Managers (NAPM). A PMI index over 50 indicates that
manufacturing is expanding while anything below 50 means that the
industry is contracting.
The PMI report is an extremely important indicator for the
financial markets as it is the best indicator of factory
production. The index is popular for detecting inflationary
pressure as well as manufacturing economic activity, both of which
investors pay close attention to. The PMI is not as strong as the
CPI in detecting inflation, but because the data is released one
day after the month it is very timely.
Should the PMI report an unexpected change, it is usually
followed by a quick reaction in stocks. One especially key area of
the report is growth in new orders, which predicts manufacturing
activity in future months.
Release Date: The first business
day of the month
Release Time: 15:00 GMT
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Measures the percentage monthly change in total receipts of
retail stores, and includes both durable and non-durable goods. It
is the first real indication of the strength of consumer
expenditure. The limits of the retail sales figure, however, lie in
the fact that it focuses on goods while ignoring services and other
items such as insurance and legal fees. In addition, the report is
stated in nominal terms rather than real, thus, not accounting for
inflation. The retail sales figure is also subject to sizeable
revisions, even when excluding auto sales (core retail sales).
Every month the data is released showing the percent change from
the previous month data. A negative number indicates that sales
decreased from the previous months sales.
This indicator is a big market mover, especially for retail
stocks. The data is very timely because retail sales data is
released within 2 weeks of the previous month.
Release Date: Second Thursday of
each month
Release Time: 13:30am GMT
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Unemployment is a key indicator. It has a lowly rating because
there are previews to it that paint most of the picture before the
actual figures are released. Most important of the previews are the
initial claims figures, which report the numbers looking for
unemployment benefit. All the same, unemployment can still
contradict expectations and cause upsets.
Release Date: Around the 7th of
each month
Release Time: 15:30 GMT
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The trade conducted between wholesalers and the retail sector.
Not watched particularly closely by markets, but gives an idea of
economic activity that may later filter through to the wider
economy.
Release Date: Around the 7th of
each month
Release Time: 15:00 GMT
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