Summary:
Employment:
Bureau of Labor Statistics measures the current state of the US economy by way of the employment situation.Consumer Price Index (CPI):
Bureau of Labor Statistics The difference in price from one month to the next for a fixed basket of consumer products, used as a common measure for inflation.Gross Domestic Product (GDP):
Bureau of Economic Analysis - A quarterly measure of the production and consumption of goods and services, broken down into several sub-categories.Retail Sales:
U.S. Census Bureau The most timely, albeit volatile, report of consumer spending patterns (excluding services).Durable Goods:
U.S. Census Bureau The current demand (new orders) and supply (shipments) balances in the economy.Institute of Supply Management (ISM) Index:
Institute for Supply Management A monthly survey of 300 purchasing managers, representing 20 different industries.Industrial Production (IP) and Capacity Utilization:
Federal Reserve Board A monthly measure of the domestic industrial output, weighted according to each input category's relative importance.The meaning of a particular number can be debated endlessly, depending on the market context it occurs in. No number can be considered a concrete indicator of inflation or the state of the economy. For example, today's inflationary report may be offset by next week's benign CPI. True trends in economic statistics only emerge over time.
However, this does not prevent the markets from reacting in knee-jerk fashion to report releases. Traders will respond particularly dramatically when a number "surprises" the market, coming in notably higher or lower than expected. While these reactions are often short-lived, they still pose problems (or opportunities, depending on your perspective) for traders. It is only in retrospect that most people can label a particularly dramatic number a sea change or an anomaly.
Here's a more detailed summary of some of the major U.S. economic report releases.
What it is: Two surveys measuring: 1) the number of people on payrolls and 2) the unemployment rate. Also measures average hourly earnings and the length of the average work week.
Who puts it out: Bureau of Labor Statistics (www.stats.bls.gov).
When it's released: 8:30 am ET on the first Friday of the month after actual month (i.e., November's employment statistics are released in early December).
What it means: The payroll report - probably the most widely watched report in the financial markets - measures the current state of the US economy by way of the employment situation. It is more of a lagging indicator.
Strong employment is generally considered the bedrock of a solid economy. The more people who work and the more money they make, the more money they can spend, which will increase the demand for goods and services. However, if supply can't keep up with demand, inflation can develop, as explained in the next section.
What it is: The difference in price from one month to the next for a fixed basket of consumer products, used as a common measure for inflation. The "Core CPI" does not include food and energy prices.
Who puts it out: Bureau of Labor Statistics (http://www.stats.bls.gov).
When it's released: 8:30 ET around the 15th of the month for the previous month's data (i.e. the March CPI is released around April 15).
What it means: A rising CPI indicates increasing inflation. According to standard economic theory, inflation increases when supply no longer can keep with demand, which usually occurs at or near the peak of the business cycle and when the unemployment rate is low.
High inflation, or expectations of high inflation, usually leads to higher interest rates, as lendors of money want to be compensated for the diminishing purchasing power of their dollars. Higher interest rates, in turn, mean higher costs of doing business for all parties in the economy (both investors and companies).
What it is: A quarterly measure of the production and consumption of goods and services, broken down into several sub-categories.
Who puts it out: Bureau of Economic Analysis (www.bea.doc.gov).
When it's released: 8:30 a.m. ET, approximately one month after the end of each quarter.
What it means: GDP is used to define business peaks and troughs, and together with employment data, it gives and important indication of productivity growth and economic strength.
Usually a growth rate of between 2.0 and 2.5 percent is considered positive when combined with an unemployment rate of 5 to 6 percent. A higher growth rate and/or lower unemployment rate might indicate inflationary pressure. A lower growth rate might indicate that the economy is stalling. A relatively large increase in inventories might indicate a future decrease in the growth rate, as production (supply) at least temporarily has outgrown demand.
Thus both numbers too low or too high can be interpreted negatively, depending on the current position of the business cycle. The fear of inflation, for example generally gets more pronounced the longer a high-growth period lasts.
What it is: The most timely, albeit volatile, report of consumer spending patterns, excluding any type of services.
Who puts it out: U.S. Census Bureau (www.census.gov).
When it's released: 8:30 am ET around the 13th of the month after the actual month.
What it means: As in the case with the CPI, rising retail sales number might indicate demand is about to outstrip supply, which might lead to higher inflation. However, because the data doesn't include services, but does include gas, cars and food, it is very volatile and subject to large seasonal changes and subsequent revisions.
What it is: The current demand (new orders) and supply (shipments) balances in the economy.
Who puts it out: U.S Census Bureau (www.census.gov).
When it's released: 8:30 a.m. EST around the 26th of the month after the actual month.
What it means: The durable goods number is another volatile indicator. It measures the demand for, and supply of domestic products with an expected life length of at least one year, including both "intermediate" goods (for instance, building materials) and finished goods (for example cars, computer equipment...etc) The report measures the rate of growth within several large industry sectors, such as auto and electronics.
If demand is higher than supply it might indicate a new period of economic growth is around the corner. However, if demand stays above supply while unemployment is low, it also might indicate higher inflation ahead, as the industry will meet the demand with higher prices rather than increased production. This is most likely to occur at the end of a bull market and at the peak of the business cycle.
What it is: A monthly survey of 300 purchasing managers, representing 20 different industries.
Who puts it out: Institute for Supply Management (www.ism.ws).
When it's released: 10 a.m. ET on the first business day of the month after the actual month.
What it means: The index is designed to fluctuate around 50, with readings above 50 indicating a growing economy. Too-high numbers or extended periods of growth might indicate the economy is about to overheat. Using ISM index, a business cycle trough could be defined as a reading at or above 44 a few months in a row.
The markets are very sensitive to unexpected discrepancies in this number, especially if that also coincides with a turning point in the index.
What it is: A monthly measure of the domestic industrial output, weighted according to each input category's relative importance.
Who puts it out: Federal Reserve Board (www.federalreserve.gov).
When it's released: 9:15 a.m. ET around the 15th of the month after the actual month.
What it means: It's an indication of different trends within various industries. In addition, it estimates the "capacity utilization" (the level of potential production capacity at which a business, such as a factory, is operating) within the economy, which, must be interpreted carefully because of the difficulty of estimating the maximum capacity in the first place.
One aspect of these reports that has become evident is their imprecise nature. Aside from highly publicized criticisms of how indicators such as the CPI have been calculated in the past, traders should understand these reports are merely barometers that are subject to seasonal fluctuations, anomalous readings and yes, human error. Many of them are regularly revised, so the number that shook the market a month ago may turn out to imply something different when it is updated and revised.
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