An economic indicator is a piece of economic data,usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities. These indicators also help to judge the overall health of an economy.

Economic indicators can be anything the investor chooses, but specific pieces of data released by the government and non-profit organizations have become widely followed. Below you can find the most important pieces of economic indicators.

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Eurozone Indicators

ECB Rate Announcement

This is an announcement of any change in monetary policy following the first meeting of the month by the European Central Bank (ECB) Governing Council (the Governing Council meets twice a month). Unlike the Bank of England, the ECB does not publish any minutes of the meeting. Instead, the President and Vice-president hold a press conference 45 minutes after the announcement, which begins with a statement by the President which is then followed by a question and answer session. The ECB has a stated aim to keep inflation below (but close to) 2% in an effort to maintain price stability.

The Governing Council comprises presidents of Central Banks representing the most powerful economies in Europe and they implement their monetary policy by setting three key rates for the euro area, which are:

  • The interest rate on the main refinancing operations (MRO), which provide the bulk of liquidity to the banking system.
  • The rate on the deposit facility, which banks may use to make overnight deposits with the Eurosystem.
  • The rate on the marginal lending facility, which offers overnight credit to banks from the Eurosystem.

These key interest rates bear a strong influence on all other rates in the euro area. High rates may serve to hinder economic growth (for example, by making it more expensive for businesses to accommodate their debt-loads) but may help to combat inflationary pressures (higher rates tends to curb consumer spending). Low rates, meanwhile, should stimulate the economy, but can lead to spiralling inflation.

  • If the ECB's decision is unexpected it can have a potent effect on European financial markets.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) measures the average price of a fixed basket of goods and services as might be purchased by consumers and provides a guide to the rate of inflation in the euro area.

A Core figure is also released that excludes food and energy prices. Food and energy are volatile components in the CPI basket and can cause distortions that only represent short-term factors.

The headline figures for the Eurozone CPI are a monthly and annualized percentage change.

A rising CPI indicates inflation and a high CPI suggest significant inflationary pressures in EMU economies. The European Central Bank aims to keep inflation at 2% or lower, and a high CPI figure puts pressure on the ECB to raise interest rates. Generally speaking, higher interest rates should be good for the euro, but negative for bond prices and stock prices.

Construction Output

It is a measure of the output and activity of the construction industry, for both the public and private sectors.

A high figure, indicating high levels of construction in the euro area, implies a growing economy: businesses are not going to invest in the expense of construction unless the funds are available and they are optimistic about the returns on such investment.

Because levels of construction are so closely tied to changes in economic growth, the index is frequently used as an indicator of the business cycle.

Bloomberg Retail PMI

It is a survey of over 1000 retailers from Germany, France and Italy (the three largest economies in the euro area) that gauges business optimism.

Respondents complete a questionnaire over a five-day period during the final week of the month. A single-figure 'diffusion index' is compiled from the percentage of responses reporting an improvement, deterioration or no change for each variable.

A headline value above 50 indicates growth, while a value below 50 indicates contraction; the greater the distance from 50, the stronger the effect.

The Bloomberg PMI is released well ahead of government retail sales figures, so it is the earliest gauge of how the retail sector is performing.

Trends in PMI can give a glimpse into consumer spending patterns. High consumer spending fuels economic growth, but may create inflationary pressures. A figure above 50 is generally considered to be bullish for the euro, whereas a figure below 50 is normally considered to be bearish.

Construction Production Index

It is a measure of the output and activity of the construction industry, for both the public and private sectors.

A high figure, indicating high levels of construction in the euro area, implies a growing economy: businesses are not going to invest in the expense of construction unless the funds are available and they are optimistic about the returns on such investment.

Because levels of construction are so closely tied to changes in economic growth, the index is frequently used as an indicator of the business cycle.

Producer Price Index

The PPI is a basket that reflects the prices being paid by producers throughout the euro area in all stages of processing (crude materials, intermediate materials, and finished goods).

The headline number is expressed as a month-on-month or annualised percentage change.

Consumer Confidence

It is a survey that measures the sentiment of consumers across the EMU.

The survey contains queries regarding personal finance, employment, savings and general expectations about the economy.

The figure is derived from the difference between positive and answers. A positive figure therefore indicates positive consumer confidence and vice versa.

If consumer confidence is high it should generally be good for the economy going forward: if consumers are confident about their finances, they are more predisposed to spend. If confidence is low, spending is likely to fall. Low consumer spending hampers the economy, whereas high spending tends to spur economic growth, although it can lead to rising consumer prices.

Economists polled by Bloomberg gave a median forecast of -12, which is the same as last month's figure.

Current Account

The ECB's Current Account gives a thorough inventory of the ways in which the European Monetary Union's economy is operating in conjunction with other economies around the globe.

Current account is one of the three components, along with Financial Account and Capital Account, that comprise an economy's Balance of Payments.

The Current Account gives details of the Trade Balance (exports and imports for goods and services), income payments (such as interest, dividends and salaries) and unilateral transfers (aid, taxes, and one-way gifts).

A Current Account surplus (that is, a positive number) shows that the flow of money from these different components into the EMU is greater than the flow of capital out of the region. A Current Account deficit (negative number) means the opposite: there is a net capital flow out of the economy.

The headline number is the Current Account balance and the percentage change in the Current Account from the previous month.

The state of the ECB's current account bears a significant influence on the strength of the euro. A persistent Current Account deficit may cause the euro to depreciate, reflecting the flow of euros out of the economy, whereas surpluses may lead to a natural appreciation of the euro.

Many of the components that make up the final Current Account, such as production and trade figures, are known well in advance, which can diminish the impact of this economic release.

Gross Domestic Product

Gross Domestic Product (GDP) is the broadest overall benchmark of economic activity and quantifies the production of goods and services within the euro area. It is calculated by adding up all expenditures on all final goods and services produced during the year as shown:

  • GDP = C + I + G + (X - M)


C = Consumption

I = Investment

G = Government expenditure

(X-M) = Net exports (exports minus imports)

The headline figure is the annualized percentage change.

An increasing GDP indicates an improving economy, which is generally good for sterling and for the financial markets. Extremely robust economic expansion can create inflationary concerns which may contribute to tightening of monetary policy.

Most of the components that comprise the report are known well in advance, meaning that GDP tends to be well anticipated. If, however, the figure does differ from expectations, it does have the potential to cause significant market movement.

Industrial New Orders

It is a measure of the value of new contracts for goods produced by the industrial sector.

The two headline figures released are percentage changes: one an annualised change and one for month-on-month.

Although manufacturing only contributes to around 25% of GDP in the euro area, the sector is largely responsible for volatility in the GDP. A high or rising figure indicates increased production in the industrial manufacturing sector, and therefore may point towards a rising GDP.

Industrial Production

It is a report that measures the change of output of the industrial sector (eg, manufacturing, energy, etc).

The figure may be adjusted to take into account seasonal variations in production and/or for the number of working days in the given period.

The industrial sector constitutes one quarter of the GDP of the euro area, but is responsible for far more than 25% of the volatility in GDP. Economic downturns/upturns are usually manifested more in the industrial sector than other sectors that contribute significantly to GDP.

M3 (Money supply)

It is a measure of all currency in circulation, large time deposits, institutional money-market funds, repurchase agreements, debt securities and larger liquid assets. It is an important inflationary indicator, as the exchange rate is affected by monetary expansion.

An increase in M3 is positive (bullish) for the euro whereas a decrease is seen as negative (bearish).

OECD Leading Indicator

A measure of the prospects for the economy of euro area as a whole, intended to give early-warning indications of signs of growth or expansion. The report is provided by the OECD, one of the foremost international economic research institutions, who measure a number of indicators that are generally accepted to precede economic expansion or contraction. The report is designed to provide more of a guide to the direction in which the economy is moving, rather than a measure of the magnitude of any movement.

As well as providing possible insights into the direction of the overall eurozone economic environment, the release has the potential to move euro exchange rates. The headline figure is an index using 100 as the base point; a high reading is generally bullish for the euro and a low reading as bearish.

PMI Services

This is a monthly survey of purchasing managers across Germany, France, Ireland, Italy and Spain that measures business conditions in the services sector. Together, these five countries make up approximately four fifths of the total service sector of the EMU.

The responses recorded by the survey are used to compile an index, the headline figure of which indicates growth above a figure of 50, but contraction beneath 50 (50 represents the so called 'boom-bust' line).

The services industry constitutes a major chunk of the total GDP of the euro area (about two thirds) and therefore any indicator of how this industry is doing also points the way as to how the overall economy is faring. A higher PMI Services level indicates a trend for increased productivity and employment in the service sector, and suggests a healthy economy.

PMI Manufacturing

It is a monthly survey of manufacturing sector activity.

The survey gives an idea of the economic outlook as figures tend to match the overall state of the economy. A high PMI indicates an increase in materials purchased, and a figure above 50 indicates positive business conditions.

Trade Balance

It is the difference between exports and imports of Euro-zone goods and services.

A positive Trade Balance, when the value of exports exceeds the value of imports, indicates a trade surplus.

A negative figure results when imports are greater than exports and indicates a trade deficit.

The headline figure for Trade Balance is expressed in billions of euros, and normally released with a year-on-year percentage change.

The Trade Balance is one of the largest components of the euro area's Balance of Payment, and hence can potentially provide key information about economic pressures affecting the value of the euro.

Exports from the euro area will generally be purchased by foreign importers with euros, so that trade surpluses are a sign that currency is flowing into the economies of EMU countries, potentially leading to appreciation in the value of the euro.

Similarly, trade deficits indicate currency leaking out of the economy, and may lead to a depreciation of the euro.

Unemployment Rate

It is the cumulative percentage of unemployed individuals across the euro area.

The figure is calculated by dividing the number of unemployed in the labor force by the total labor force, yielding a percentage measure.

Individuals are defined as unemployed if they are 15 years or older and without a job, having actively sought employment in the past 4 weeks and are willing and able to work in the next 2 weeks.

A dropping unemployment rate means more people have jobs than before, which generally means they have more money to spend. Higher levels of spending helps instigate economic growth. Low levels of unemployment can also lead to wage inflation, however, which brings overall inflationary concerns.

As this figure is released earlier than GDP figures, it can be useful for gauging the overall economic health of the eurozone, although its impact is somewhat reduced by individual member states releasing unemployment data in advance of this combined rate.

ZEW Survey of Economic Sentiment

A survey of financial experts across Europe canvassing their opinion (positive, negative or neutral) regarding the economic prospects for the euro area as a whole. The results of the survey are summarised as the number of positive responses minus the number of negative responses. Gives an idea of expectations for the economy of the eurozone. The higher the number, the better the business climate.

United States Indicators

Consumer Confidence

This figure is released on the last Tuesday of every month at 10.00 Eastern Standard Time (3pm London) by The Conference Board. The Consumer Confidence Index is compiled via a survey of 5000 US households that investigates the outlook of consumers toward current economic circumstances and their views of the future prospects of the economy.

The data is split into different areas around the US and can give strong indications of consumer spending. Although the two are not definitely tied together, and don’t necessarily move in tandem, high or growing consumer confidence is likely to lead to high or growing consumer spending. With consumer spending contributing well over half of the US economy, any clues as to the changing nature of that spending is therefore a useful indicator as to how the economy may perform.

The Fed also intently follows consumer confidence and it bears an influence on their decision making process when determining interest rates – for example, high or rapidly rising consumer confidence has inflationary implications. Conversely, the Fed may feel obliged to cut interest rates to bolster low consumer confidence and generate greater spending. The survey can also offer evidence about the labour market – expectations of rising wages may indicate a tightening job market.

An index change of at least five points is considered to be noteworthy; many people use a three- to six-month moving average in order to spot changes in trend, with the accepted wisdom being that important changes in consumer confidence occur when the index moves above or below the moving average.

Consumer Price Index

The Consumer Price Index (CPI) measures the average price of a fixed basket of goods and services as might be purchased by consumers and provides a guide to the rate of inflation – the CPI is, in fact, the most extensively monitored inflation indicator in the US. The figure is released by the Bureau of Labour and Statistics around the 15th of each month at 08.30 EST.

Inflation bears a potent influence on how interest rates are set, which accordingly has a knock-on effect on shares, bonds and commodity prices.

A rising CPI indicates inflation and a large increase in the CPI indicates a large inflation rate. Low rates of inflation are likely to be tolerated by the Federal Reserve, but the Fed tries to combat inflation by increasing interest rates

A large increase in the CPI, therefore, suggests the likelihood of increased interest rates, and in the long run, should lead to the bond markets falling; such an inflationary figure is also likely to have a deleterious effect on the stock market.

Correspondingly, small increases in the CPI should mean a rally of the stock market, along with bonds. Typically, the CPI rising at an annual rate of 1-2% is seen as optimal; anything over this is a forewarning of mounting inflation.

Durable Goods Orders

This is a government index released monthly by the Census Bureau of the Department of Commerce at 08.30 EST, usually around the 26th of the month. The data relates to activity for the previous month.

The index measures the quantity of new orders placed with US manufacturers for delivery of durable factory goods, such as machinery, vehicles and electrical appliances. Durable goods are defined as being items that have a normal life expectancy of three years or more.

A rising level of the index indicates an increasing demand for US manufactured durable goods, which implies a likely increase in production and employment. A falling index suggests the converse

This figure is important, as it gives an insight into a significant component of the economy: namely, the manufacturing sector.

The data also provides hints about business investment: if there is a greater demand for expensive pieces of equipment such as industrial machinery and computers, for example, it indicates a commitment to spending from businesses, which in turn intimates that they must be encountering sustainable growth.

A strong figure should be positive for the US dollar as well as for the stock markets.

Empire State Manufacturing Survey

A relatively new survey as compared with more established US business surveys (such as the Philly Fed and the ISM Manufacturing Index), this survey was first conducted in July 2001, with the first release of information occurring a year later.

The Empire State Survey is based on the same methodology and asks the same questions as the Philadelphia Fed’s Business Outlook Survey and is conducted monthly by the Federal Reserve Bank of New York (the New York Fed).

The participants are New York State manufacturing companies with 100 or more employees or annual sales of at least $5 million (about 250 companies).

The results of the survey are published on the fifteenth of the month (or on the next business day).

The questionnaire invites the contributors to document the direction of change of a number of business indicators, such as general business activity, new orders, inventories and shipments. The options are purely directional, i.e. increase, decrease or no change, with no indication of magnitude being requested.

For each indicator, the New York Fed subtracts the percentage of participants disclosing a decrease from those noting an increase.

Manufacturing conditions are subject to seasonal variations, and as a consequence, the data are adjusted to take into account these variations. As the Empire State Survey has a relatively limited amount of history, the New York Fed uses data from the same questions in the Philly Fed’s Business Outlook Survey, married with Empire State Survey data, in order to calculate the seasonal adjustments factors.

The Empire State Manufacturing Survey is a comprehensive snapshot of the NY State manufacturing sector, providing evidence of how busy the sector currently is and where the sector is likely to be heading.

Manufacturing is an important component of the US economy and this survey can therefore exert a strong effect on the stock and bond markets.

This survey is posted before the other major manufacturing surveys (the Philly Fed’s business outlook survey, the NAPM-Chicago Index and the ISM manufacturing index) and therefore gains its influence on the equity markets from its status as being the ‘early bird’. Its impact on the bond market comes as a consequence of the Federal Reserve viewing this survey as an important inflationary indicator.

Employment Situation

The Employment Situation is a monthly report on the labour market in the US. The data is released at 08.30 EST on the first Friday of the month and relates employment information for the previous month. The report is issued by the Bureau of Labor and Statistics and consists of two core parts.

The first part is concerned with measures of employment. Figures contained in this section include:

  • The unemployment rate which evaluates the number of unemployed as a percentage of the work force
  • Non-farm payrolls which measures the number of paid part-time or full-time workers in the US, excluding the farming sector

The second part of the report contains information about the labour market such as average weekly hours worked (in the non-farm sector) and average hourly earnings.

The Employment Situation Report is considered to be the best indicator of unemployment, wage pressure and the overall job market. Such information can be extremely useful for judging the present and future direction of the economy and this makes the report a hugely important indicator, often causing dramatic market movements. Consequently, the Employment Situation is closely watched by investors.

The report is comprehensive, covering over 250 regions across the US and almost every important industry. The data is also very up-to-date: the information contained in the report is only a few days old.

The employment data contained in the report presents an insight into wage trends and therefore wage inflation, always something for which the Fed is on the lookout, and the information can therefore act as a pointer toward interest rate changes.

This indicator can also occasionally set the tone for other indicators that occur later in the month. The data is specified by industry so that, for example, information pertaining to construction jobs may have a bearing on Housing Starts.

Investors should be wary of the fact that summer or seasonal employment does tend to skew the results of this indicator.

FOMC Policy Announcements

In the US, the Federal Reserve has responsibility for setting monetary policy.

The Federal Reserve Open Committee (FOMC) holds eight regularly scheduled meetings each year. These occur approximately every six weeks and are immediately followed by an announcement of any changes to monetary policy.

These meetings are considered to be the single most influential event for the financial markets.

The FOMC consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; four of the remaining eleven Reserve Bank Presidents, who serve one-year terms on a rotating basis.

Changes to monetary policy most often relate to changes in the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

The federal funds rate acts as a yardstick for all US rates and adjustments by the Fed to the rate produce a chain of events that influence other short-term interest rates, FX rates, long-term interest rates and eventually a host of economic factors, such as employment, output and prices of goods and services.

Changes in the federal funds rate, and the associated knock-on effect to other rates and to bonds, can have a strong effect on investment trends: a rise in rates, for example, which leads to higher yielding bonds and better returns for other fixed-income products, can make stocks less attractive.

Moreover, higher rates will slow consumers’ high-level purchases (most significantly houses and cars) and will have a major bearing on companies that have high levels of debt or businesses that have to pay financing on high inventory levels.

Ultimately, lower interest rates are bullish for the economy and financial markets, whereas higher interest rates are bearish.

Gross Domestic Product

Gross Domestic Product (GDP) is the broadest overall benchmark of economic activity and quantifies the production of goods and services within the US. It is calculated by adding up all expenditures on all final goods and services produced during the year as shown:

  • GDP = C + I + G + (X - M)


C = Consumption

I = Investment

G = Government expenditure

(X-M) = Net exports (exports minus imports)

An increasing GDP indicates an improving economy, which is generally good for the dollar and for the financial markets. Extremely robust economic expansion can create inflationary concerns which may contribute to tightening of monetary policy.

Most of the components that comprise the report are known well in advance, meaning that GDP tends to be well anticipated. If, however, the figure does differ from expectations, it does have the potential to cause significant market movement.

Housing Starts

Housing Starts is a report that measures the change in volume of new houses built in the US each month. The report is released two to three weeks after the month in question at 08.30 EST by the US Census Bureau.

The data is broken down into different categories of housing: single-family residential units, two- to four-family residential units and five- or more-family residential units.

The single-family Housing Starts figure is a more dependable indicator than the multi-family figure, as single-family housing is driven by demand and consumer confidence, whereas multi-family residences can be subject to the influence of property speculation.

An increase in Housing Starts implies an increase in commitment to build new properties by developers and construction companies. As such a commitment will inevitably involve large outlays, it can be seen to indicate an increase in investment and business optimism.

The report also sheds light on consumer activity: buying a new home is always likely to involve high consumer spending in the form of decorating costs, household appliances, etc.

As a consequence of its relationship with consumer and corporate sentiment, property investment typically guides economic development.

A fall in Housing Starts is often a forewarning of a slowdown in the economy, whereas a rebounding number of Housing Starts can often point toward economy recovery.

The Housing Starts report is one of the earliest indicators for the housing market: only Building Permits is more timely.

Industrial Production

Industrial Production is a monthly report that measures the volume of output of factories, mines and utilities in the US. The data is released by the Federal Reserve Board at 09.15 EST, roughly 15 days after the month in question. The figure is subject to modest revisions three months after release, with annual revisions in early autumn.

As Industrial Production quantifies output volume as opposed to dollar value, the data is not distorted by inflation and is therefore deemed to be a 'purer' gauge of the industrial sector in the US.

Industrial Production makes up no more than 20% of the US economy, yet is responsible for most of the volatility and is judged to be very susceptible to variations in interest rates and consumer demand. Consequently, spotting trends in this figure can offer clues as to the futures trends of GDP.

High or rising Industrial Production suggests economic expansion, which should be beneficial for the stock market. If the figure rises too quickly, suggesting aggressive or uncontrolled growth in the economy, it can cause inflationary pressures, which is bad for the bond market.

This indicator can change quite dramatically from month to month simply due to seasonal and weather conditions, which can strongly impact on factory production. The report's effect on the market is limited as a consequence of this inherent volatility.

ISM Manufacturing Index

The ISM Manufacturing Index is a monthly survey conducted by the Institute of Supply Management that gauges the condition of US manufacturing activity.

The report is released at 10.00 EST on the first business day following the month under survey, and is considered to be the most important of all manufacturing indices.

The indicator is based on a survey of over 300 purchasing managers across the US, representing 20 industries, and covers such topics as New Orders, Production, Employment, Inventories, Delivery Times, Prices Paid, Export and Import Orders.

For each topic, those surveyed are asked to indicate observed activity with a response of 'higher', 'no change' or 'lower'. A diffusion index is hence created by adding the percentage indicating 'higher' to half the percentage denoting 'no change' and subtracting the percentage of 'lower'. The headline figure for the overall ISM Manufacturing Index is then calculated as an aggregate of the result for all categories.

Readings greater than 50% are generally accepted as pointing toward expansion in the sector, while readings below 50 usually correlate with contraction.

ZEW Survey of Economic Sentiment

Values below 40 are usually recognised as a sign of a recession in the overall economy. Values above 65 indicate strong growth.

The ISM Manufacturing Index is liable to move markets, especially when periods of rapid economic growth are approaching the end of their cycle. Its reputation as one of the chief market-moving economic releases is related to how quickly the data is released: the information contained in the report presages other key data, such as Non-farm Payrolls and CPI.

Moreover, variations in manufacturing tend to wield the greatest influence on changes in GDP, despite manufacturing constituting only a comparatively small proportion of GDP. Trends in the direction of the economy are accordingly often foreshadowed by developments in manufacturing: an upturn in manufacturing activity after a period of recession is a strong indication of a reversal upward in the economy. On the other hand, waning levels of manufacturing orders and production in a phase of expansion may well suggest a slowing economy - or even herald the beginning of a recession.

The index is also seasonally adjusted in order to take into account variations during the year.

Additionally, the report contains a price index: the ISM Prices Paid figure. It represents business sentiment regarding future inflation, where a higher figure indicates stronger expectations of inflation.

Jobless Claims

This is a simple measure of the job market in the US. The figure reports the numbers of individuals who are signing on for unemployment insurance for the first time. Therefore, a rising movement in the number indicates a weakening labour market and a downward movement in the figure indicates a stronger job market.

Generally speaking, a strong labour market should have a positive influence on the economy, as it implies increased household spending power (generated by the income that comes from the increased number of jobs).

A very strong labour market can be a cause of inflationary pressures, however, as a tight labour market – where employers face competition for new workers as a result of the relatively low number of people looking for work – can lead to increased labour costs. Such wage inflation increases the likelihood that interest rates will be raised by the Federal Reserve. This will, in turn, have an impact on bond and stock prices.

New Home Sales

This figure measures numbers of recently built residential housing with a committed sale for the month.

This ostensibly narrow set of data has a ripple effect throughout the economy: as well as providing a direct guide to housing market trends and to how well companies in the building sector are likely to be doing, the construction of a new home generates more building jobs (the creation of jobs always implies an increase in household spending power and therefore is generally considered beneficial for the economy), revenues for the construction company and estate agent.

One would also expect the new home buyer to be making a number of consumer purchases of furniture and household appliances (in other words, each new home sale leads to an associated increase in household spending).

To conclude, the new home sales figure directly influences stock, bond and commodity prices, by virtue of the wide-ranging boost to the economy that new homes generate.

Philly Fed Index

The Philly Fed (or the Federal Reserve Bank of Philadelphia’s Business Outlook Survey, to give it its full name) is an index that is compiled monthly based on a survey of manufacturing conditions in the states of Philadelphia, New Jersey and Delaware. The data is released by the Federal Reserve Bank of Philadelphia around the 17th of each month at 10.00am EST and is widely seen to indicate the direction that the manufacturing sector is heading.

The survey has been carried out since 1968 and is composed of a number of questions regarding business activity, such as employment, working hours, orders, inventories and prices, that are posed to manufacturing companies in the relevant states.

The index indicates contraction when it is below zero and expansion when it is above.

Although not considered to be a particularly big market mover, the Philly Fed Index is useful for a number of reasons. The results are released early in comparison to other similar indicators, and therefore can be used as a guide as to what to anticipate. Manufacturing is widely accepted as being a forerunner of upcoming conditions in the economy – in poor market conditions, for example, an upturn in the manufacturing sector will usually lead to an anticipation of economic recovery.

Limitations in the survey are as result of it only covering three states. Consequently, the performance of the index does not automatically translate to a similar performance across the rest of the US.

Producer Price Index

The Producer Price Index (PPI), formerly known as the Wholesale Price Index, is a measure of inflation. While not as widely used as the CPI, many market participants do still pay close attention to the PPI and it is regarded as a high-quality gauge when it comes to detecting inflation.

The PPI is a basket of prices affecting US producers, made up of roughly 100,000 prices collected from 30,000 production and manufacturing firms.

The PPI consists of three core areas: finished goods; intermediate supplies (in other words, materials and components);and raw materials that require initial processing. The most oft quoted of these three is the ‘finished goods’ PPI, which reports on products that are bought by companies from producers in order to be sold on to consumers. This is because commodity prices, especially food and energy, react quickly to supply and demand, which is a source of volatility in the PPI; the ‘finished goods’ PPI excludes food and energy. This makes this form of PPI more comparable with CPI, which has a measure of stability by virtue of wages making up a greater share of costs at the retail level than at the producer level (wages being less volatile than goods).

While the CPI measures prices that consumers are paying, and affects the Fed’s interest rate policy more directly, the PPI presents key data from earlier in the production process – it therefore potentially offers an opportunity to predict movement in the CPI.

Purchasing Managers' Index (PMI)

The Purchasing Managers’ Index (PMI) is a report mainly composed of five indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The index is released by the Institute of Supply Management (ISM) at 10.00am on the first business day of each month, and contains data for the previous month. The data is compiled by the Association of Purchasing Managers who survey over 300 purchasing managers across the US who act for 20 different industries.

An index level over 50 suggests an expanding manufacturing sector, whereas a figure below 50 indicates that manufacturing is tightening.

The PMI is seen as the most representative indicator of factory production and, as such is very influential on the stock market; it is regarded as a useful tool for identifying inflationary pressure and also for gauging the economic performance of the manufacturing industry. CPI data is considered more useful as a measure of inflationary concerns, but the PMI is useful in this area owing to its timing: the data is released just one day after the month to which it pertains.

Any unexpected result in the PMI generally results in a swift response in stock prices. Of the five major components of the index, new orders is perhaps the most important, as it is can be used to estimate manufacturing activity over coming months.

The PMI is frequently employed as a predictor of the Produce Price Index which is released later in the month.

University of Michigan Sentiment

The University of Michigan's Index of Consumer Sentiment (often known simply as Michigan Sentiment) is a monthly report that assesses consumers' thoughts on the economy and their personal finances.

Preliminary numbers are released on the second Friday of each month and revised final figures on the last Friday of the month at 09.45 EST.

The report is determined via a survey of consumers from 500 households. The preliminary figure encompasses roughly 60% of the data used in the final figure, and is not officially meant to be released to a wide audience. Preliminary figures are regularly leaked to the press, however, and therefore accessible to the financial industry.

Although the survey polls fewer consumers than the Conference Board's Consumer Confidence Index, and is not as well established, the University of Michigan Survey is acknowledged as being one of the primary indicators of US consumer sentiment and often moves the financial markets on release.

The headline figure is determined by subtracting the percentage of unfavourable responses from the percentage of favourable responses and a low or falling number is taken to be an early sign of a downturn in the economy. Consequently, investors follow this indicator closely in order to gauge the strength of the economy.

United Kingdom Indicators

BOE Rate Announcements

The Bank of England Monetary Policy Committee (MPC) meets every month for two days in order to establish the short-term direction of monetary policy. The meeting is usually held on the first Wednesday and Thursday of each month, with changes in monetary policy announced directly after. Details are only made available in the minutes, however, which are subsequently published a couple of weeks later.

The Bank of England differs from other major central banks in that it has a stated inflation objective which is set at 2 percent. The MPC uses the Consumer Price Index in order to assess UK inflation and therefore establish its decision on any amendments to the base rate.

The rate agreed by the MPC acts as a basis for every other UK rate and any change will have a knock-on effect on Short Sterling, Gilts, mortgage rates and so on. If the MPC decides on a change that is out of line with market expectations, it can have a substantial and extensive impact on UK markets (and, to a lesser extent, European markets).

Consumer Price Index

Consumer price indices quantify the variation in the general level of prices charged for goods and services bought for the purpose of consumption in the UK.

There are two key measures of inflation in the UK: namely, the Consumer Price Index (CPI) and the Retail Price Index (RPI).

The RPI is the more commonly known of the two, and is the basis for revisions to tax allowances, state benefits and pensions.

The CPI is used by the Government, however, as the basis for their inflation target, which was set at an annual rate of 2% in December 2003 and is also an internationally comparable gauge of inflation. Before December 2003 CPI was known as the Harmonised Index of Consumer Prices (HCIP).

CPI figures are released by the Office for National Statistics at 08.30 GMT around the middle of each month, with data pertaining to the previous month.

Broadly speaking, the information compiled in order to determine the two figures is the same: around the middle of each month the Office of National Statistics records over 100,000 prices for over 500 items consisting of specified types of good and services in a variety of shops in around 150 locations spread throughout the UK. Index calculations are based each month on ‘like for like’ comparisons. The components of the index are weighted to reflect the relative importance of the items in question. For example, a rise in the price of petrol would have a bigger impact on the RPI than the price of bread.

So, in essence, the CPI uses the same data as the RPI; there are, however, some important differences between the two. RPI is expressed in terms of the comparison of prices relative to January 1987, when the index is assigned a value of 100.

CPI has a shorter history and is expressed comparative to 1996, when the index has a value of 100.

A different form of the CPI is the Core CPI, which excludes such volatile items as food and energy, and is thereby considered a more useful measure of inflation owing to its exclusion of these components which may distort the change in the cost of living.

To combat inflation the Bank of England may raise interest rates which will have an adverse effect on the economy. Higher rates will, in the short term, make holding sterling more attractive to foreign investors, which will in turn cause upward pressure on the value of sterling.

Current Account

Current Account summarises the flow of all goods, services, income and transfer payments to and from the UK and is reported quarterly by the office of National Statistics at 08:30 at the end of the final month following the relevant quarter.

Current Account, along with Financial Account and Capital Account, makes up the UK's Balance of Payments and a positive value indicates a current account surplus, whereas a negative value indicates a current account deficit.

Persistent Current Account deficits may lead to a natural depreciation of a currency, as trade, income and transfer payments usually reflect sterling leaving the country to make payments in a foreign currency (just as underlying surpluses act as an appreciating weight).

Current Account figures are released several weeks after the period for which they are reporting, which has the effect of diminishing the impact of the report on the financial markets.

Nevertheless, Current Account is important for forecasting long-term developments in FX rates and is useful as a depiction of how the British economy is interacting with the rest of the world.

NIESR GDP Estimate

This is an unofficial estimate of the UK's Gross Domestic Product, made by the National Institute of Economic and Social Research (NIESR). The estimate is released monthly at 23.01 GMT no more than two weeks after the end of the month on which the data is based.

The implications of the report are very similar to those for GDP: an expanding GDP indicates a growing economy, which is generally beneficial for the financial markets. Growth that is too rapid will promote inflationary worries, however, that may influence the MPC to raise interest rates.

Trade Balance

Trade Balance is a monthly report that measures the difference between exports and imports of goods and services. The report is released by the Office of National Statistics at 08.30 GMT, within 40 days of the period to which the data pertains.

The figure is typically expressed in billions of pounds, and is presented alongside a year-on-year percentage change.

The Trade Balance is one of the largest constituents of the UK's Balance of Payments and accordingly offers a useful glimpse into pressures on the value of sterling.

A positive figure shows that the value of exports exceeds the value of imports: a trade surplus, in other words.

It follows that a negative number is indicative of exports being exceeded by imports: a trade deficit.

A trade deficit essentially signals that sterling is seeping out of the country, in order to purchase foreign imports with foreign currency. This outflow of currency can have a negative impact on the value of sterling, if not offset by comparable capital inflows.

This report's influence is moderated by its somewhat belated nature: the information is released up to 40 days after the period to which it relates. Moreover, the data is often well anticipated.

Despite these limitations, Trade Balance is still considered one of the more significant reports issued from the UK, owing to the general importance of Trade Balance data.

Unemployment Rate

The Unemployment Rate is released quarterly, around the middle of the month, by the UK Office of National Statistics, and is based on a survey of around 53,000 households throughout the United Kingdom.

The report measures the proportion of the economically active population defined as unemployed.

The definition of an unemployed person is either someone who is without a job, but wants to work and has actively sought work in the last four weeks, or someone who is out of work, has found a job and is waiting to start in the next two weeks.

The Unemployment Rate allows unemployment to be interpreted in the context of other changes, such as variations in the size of the population and in economic activity.

A lower Unemployment Rate means greater numbers of workers who are earning an income and this suggests greater consumer expenditure and therefore economic growth. This is generally beneficial for the stock market, but, as always, if growth is too fierce, it can create inflationary pressures.

The Unemployment Rate is a moderately important indicator and can have a reasonable impact on the markets.

Posted on

July 24, 2019


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