Quick Reference to Economic Indicators

Reports & Events that move Sectors and Industries

The current statistics amongst the various segments of U.S. trade and industry activity are released throughout the month via Economic reports.  The data, depending on its significance at the current time in its unique economic situation, will often produce swings in the markets, sectors and/or industries.  Adversely, if the data’s significance at the current time is minimal, so will be the reaction.

Then there are events and circumstances that happen regularly which, in many cases, produces or changes market trends. Such events usually have a sustainable presence in the market to keep the trend going to as much as a quarter at a time.

It is imperative that a trader understands the market’s expectations and the market’s reaction to specific reports as the swings often stop out open positions or provide entry opportunities.  Having said that, know that trading on news is not advisable as the follow through on such swings are not often reliable.  They can, however, provide good defensive posturing.

All economic indicators fall into one of three categories:

• Leading indicators – considered to point toward future events. (Building Permits, Housing Starts, Bond Yield Curve)
• Lagging indicators – seen as confirming a pattern that is in progress. (CPI, PPI, PMI, Unemployment)
• Coincident indicators – occur in real-time and clarify the state of the economy. (GDP, Personal Income)

In addition, in the case of economic data, not all good news is always good news.  Likewise, bad news is not always bad news either.  Depending on the state of the economy, traders will look to data to support a cause in their belief that monetary policy will react accordingly to certain data. Once again, it comes down to expectations.

Thus, a rise in the Consumer Price Index may indicate an expanding economy in certain time frames (good news is good news) but could be seen as a sign of growing inflation in another time frame (good news is bad news).

(excerpts from Pattern Trader™ Tutorial 11th Edition and Investopedia)

C

Capacity Utilization

See “Industrial Production”

Central Bank/Monetary Authority Meeting Minutes

Construction Spending

Construction spending is an economic indicator that measures monthly expenditures toward new construction. Construction spending encompasses various construction-related expenses such as labor, materials, and engineering work. The U.S. Census Bureau provides a monthly construction spending report; broken down by public and private construction and residential and non-residential. Nearly 50% of all construction spending in the U.S. comes from the housing sector.

Consumer Confidence

This report compiles a monthly survey of 5,000 consumers across the U.S., and their attitudes on present and future economic conditions.  The report takes consumer attitude and spending – which accounts for more than 65% of the economy–into consideration.  The more confidence we consumers feel about the economy and our personal finances, the more likely we are to spend money; of course, that fuels the economy.

Traders please note: Consumer Confidence and Consumer Spending reflected in the Retail Sales report do not necessarily move in tandem.

CPI (Consumer Price Index)

The CPI is a measure of the average price level of a fixed basket of goods and services purchased by consumers.  This report is regarded as key, because changes in the CPI indicate changes in the rate of Inflation.  (Inflation = the rise in cost of goods and services.)

D

Debt-To-GDP

The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts. Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt, if GDP is dedicated entirely to debt repayment.

The Formula for the Debt-to-GDP Ratio Is: Debt to GDP = Total Debt of Country ÷ Total GDP of Country​ 

Durable Goods Orders / Core Durable Goods Orders

The Durable Goods report measures the dollar volume of orders, shipments and unfilled orders of goods with an intended lifespan of three years, or more.  This report is a leading indicator of manufacturing orders.  While it can cause market volatility, it is subject to revisions.

Core Durable Goods orders are orders of goods with an expected useful life of at least three years, excluding transportation equipment. Core durable goods orders exclude transportation equipment in order to control for the volatility of large single orders of new vehicles such as airplanes, ships, and trains. Core durable goods new orders are watched by businesses, investors, and economic policy makers as an indicator of the current and near-term health of the economy.

E

Earnings Season

The first month of a quarter (January, April, July and October) always brings a deluge of earnings with most of the DOW, S&P and NASDAQ listed components, making a significant impact on market movement. Good earnings will rally the quarter. Poor earnings will tank it.Earnings Season in the U.S. begins on the second week of the quarter and ends 6 weeks later. Traditionally, it begins with the announcement of JP Morgan’s (JPM) earnings and ends with either Wal-Mart’s (WMT), or Home Depot’s (HD), whichever is last.

ECI (Employment Cost Index)

This report focuses on changes in three categories: total employment costs, wages and salaries, and benefit costs.  This is reputedly one of Alan Greenspan’s favourite indicators.  Since wage inflation can signal a raise in interest rates, traders keep an eye on the ECI.

Employment Situation

The “employment numbers” are an important set of labour-related statistics that include – but are not limited to–the unemployment rate (measures unemployed as a percentage of the labour force), nonfarm payroll employment (the number of part-time and full-time employees in U.S. business and government establishments), and average hourly earnings.  The unemployment report relays important information as to the state of our economy and its outlook.

The Non-Farm Payrolls report is released on the first Friday of every month if the ADP Report falls on the first Wednesday of the month.  The FOMC watches this report, intently.  So should you!

Existing Home Sales

This monthly data report released by the National Association of Realtors (NAR) is a lagging indicator as it reacts after a change in mortgage rates. Existing home sales track regional transaction data in the existing U.S. stock of single-family dwellings, condos, and co-ops. The reporting of most existing home sales transactions happens after the closing, and so does not consider pending sales still in contract. The majority of transactions usually involve a mortgage, which may take 30 to 60 days to close on. As a result, existing home sale data most likely includes contracts which were signed at least a month or two before the report is published.

Expiration Friday

The third week of every month is Options Expirations Day.  “Quadruple Witching” day falls on the third Friday of every end-of-quarter.  During that week, Options Contracts will expire on stock options, stock index options, futures options and single-stock futures.

Traders will tend to rollover or close positions during this period, which creates choppy, unpredictable conditions for the market.  These volatile conditions, often accompanied by larger-than-usual volumes, tend to increase the risk to short-term traders.

Generally, the more witches there are, the more volatile it can get.

• • Quadruple Witching or Quad Witch is the end of quarter:

  Expiration Friday of four derivatives:

1. 1. 1. stock index futures,
      2. stock index options,
      3. stock options and
      4. single stock futures

• • There is also Triple Witching:

1. 1. 1. stock options,
      2. index options, and
      3. index futures.

• • and Double Witching:
    • Two of the Triple Witches

• • If it’s just one Derivative expiring, it’s always Stock Options

F

Federal Funds Rate/Central Bank Monetary Policy Decision

FOMC Meeting Policy Announcement

The Federal Open Market Committee meets eight times a year, to assess and adjust monetary policy.  The meetings are held twice a quarter – one in the first month and the other in the third month of the quarter. Changes in monetary policy and interest rates are announced immediately after the two-day meeting on Wednesday, at approximately 2:00 p.m. ET.  Financial news networks are good announcement resources.

Short-term traders should beware trading when Fed policy is announced, as the markets can become highly volatile and erratic.  This becomes especially true if the announcement in policy and/or rates differs from expectations.  Remember, interest rates = the cost of money.  In addition, the cost of borrowing money has far-reaching effects in every corner of our economy.

Stay up-to-date on FOMC meetings and announcement dates.  They can have a dramatic and on-going impact on the financial markets.

The Beige Book – Summary of Commentary on Current Economic Conditions by Federal Reserve District

Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic 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 summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

The Green Book is also referred to as the Current Economic and Financial Conditions. It has an overview of the U.S. and international economies. The Green Book is published a week before each FOMC meeting. As its name implies, the report has a green cover. The report is divided into three sections:

• • • Summary and outlook
    • Recent developments
    • Supplement

The Blue Book has a light blue cover and is also known as the Monetary Policy Alternatives. As suggested by its formal name, it presents alternatives on monetary policy the FOMC may discuss and use at its meetings. This report is published a week before each FOMC meeting – the day after the Green Book.

The Red Book is for the POTUS’s eyes only.

The Unofficial Language Behind Fed Terms

Let’s talk about time …

Over time, Fed Watchers have come to familiarise the FOMC language, relative to past performance and have more or less determined timeframes for certain phrases that the FOMC uses when it disseminates information.

• • • “Extended Period of Time” often refers to a period of up to six months or so.
    • “Indefinite Period of Time” is longer than six months and up to 12 months or so.
    • “Infinity” or “Infinitely” is a period that is undefined. Another phrase that describes this is “as long as it takes”.

When it comes to a “Term” on the FOMC, this refers to the period of service by a Fed member which is fourteen years. The seven members of the Board of Governors of the Federal Reserve System are nominated by the President and confirmed by the Senate. A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years.

For more on Fed-Speak, go to: https://www.federalreserve.gov/regreform/reform-glossary.htm

G

GDP (Gross Domestic Product)

The GDP is the broadest measure of U.S. economic activity and includes current statistics relating to growth in every sector and industry group.  This report can easily move the stock market.

• • A hard landing in the business cycle or economic cycle, is an economy with high unemployment, rapidly shifting from growth to slow-growth to flat as it approaches a recession, usually caused by government attempts to slow down inflation.
  • A soft landing in the business cycle is the process of an economy with low unemployment shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession. It is usually caused by government attempts to slow down inflation.

H

Household Income

Household income refers to the combined gross income of all members of a household, defined as a group of people living together, who are 15 years or older. It is used to determine the economic health of an area or to compare living conditions between geographic regions. Generally, it is less than the median family income.

Household Debt-To-GDP

Housing Starts

Housing starts measure initial construction of single and multifamily residential units each month.  Since the housing boom, some call it a “bubble”, that ran from 2003 to 2007 (fuelled by low interest rates), investors and traders now watch Housing Starts carefully for signs of on-going growth and demand, or for signals of a contraction.  In addition to homebuilders, industry groups affected by the housing industry include lumber, appliances, home furnishings, landscaping and mortgage lenders.

I

Index Additions

Normally an activity for the year end, Indexes like the Dow Jones, S&P and NASDAQ will alter their basket of stocks by ‘dropping’ some out-of-favour stocks for fresher, more profitable alternatives.The Russell Small and Mid-Caps tend to make sweeping changes to their indices on the last Friday of June (end of Quarter Two). This period in the market tends to get volatile with large increases of volumes traded.

Additions also take place when a company is ‘dropped’ after being acquired or merged and is no longer an independently listed equity. The newly included stocks will experience a rally upon the announcement of its inclusion into an index basket and will promptly tank upon actual inclusion on the execution day.

Industrial Production and Capacity Utilization

• • Industrial Production reflects the physical output of U.S. factories, mines and utilities.
  • Capacity Utilization rate measures the usage of resources among these companies.

If the operating rate rises above 85%, it signals that factories and plants are approaching full capacity.  While this report shows which sectors of the economy are strengthening and which are not, Mister Market sometimes translates rising capacity utilisation into a warning sign of impending inflation.

Initial Jobless Claims (refer to https://www.financialscents.com/glossary/)

When it is released: Every Thursday, 08:30 a.m. EST

This weekly data monitors the unemployment rate through monetary claims made by unemployed individuals amongst American Adults. A key level to note is the bracket between 450,000 to 500,000 initial claims – this is usually an indication of more than 9% unemployment.

ISM Index/Purchasing Manager’s Index (PMI) 

The Institute for Supply Management surveys approximately 400 manufacturers.  Information results in a composite report detailing production, new orders, inventories, supplier delivers and employment.  A reading above 50 indicates an expanding factory sector.  A reading below 50 indicates contracting conditions.

The PMI comes under two categories – Services and Manufacturing. Depending on the business model of the economy, one is usually more significant than the other in moving the market.

The FOMC (Federal Open Market Committee) watches this significant report for signs of inflation and deflation.

J

K

L

Leading Indicators (refer to https://www.financialscents.com/glossary/)

This report represents a composite index of ten economic indicators credited for leading the economy.  A few of the indicators used: new orders for consumer goods, stock prices, initial jobless claims, money supply, building permits, and the spread between the 10-year note and Federal funds rate.

The index of leading indicators is designed for its predictive value in signalling turning points of the economy.  Short-term traders should know, however, that key components in this index have been reported earlier in the month.  That means they lose much of their immediate predictive value.

M

N

NAHB/Wells Fargo Housing Market Index (HMI)

The NAHB/Wells Fargo Housing Market Index (HMI) is based on a monthly survey of members belonging to the National Association of Home Builders (NAHB). The index is designed to measure sentiment for the U.S. single-family housing market and is a widely watched gauge of the outlook for the U.S. housing sector. Since housing is a large investment, housing market indices help to monitor the overall health of the economy.

Natural Gas Inventory Data

When it is released: Every Thursday, 10:30 a.m. EST

This is similar to Oil Inventory Data but not as reliable a mover of the markets.

New Home Sales

New Home Sales, also known as ‘new residential sales’ and published monthly by the United States Census Bureau, is an economic indicator that measures sales of newly built homes. New Home Sales is viewed as a lagging indicator of demand, but is still closely watched by investors for clues about the broader movements in the economy. New Home Sales data is based on a representative sample of home sales and is driven by factors such as household income, unemployment, and interest rates.

O

Oil Inventory Data

When it is released: Every Wednesday, 10:30 a.m. EST

This data tracks the supply and surplus of crude oil inventories.  Often a short-term mover of the market, the release of this information makes the equity market rather volatile when the data produces a surprise or unexpected result.  The market always has an expectation before the results are published.  When the results are more than expected, in-line or less than expected, the market will react and cause prices (across the board) to either rise or fall.

A “draw down” means that there was a less than expected supply of the black stuff or that inventory was lower than expected.  This translates into less supply and more demand which will cause oil prices to rise.  Equity markets react adversely and prices will fall.

A “build” in inventories means that there was more than expected supply or surplus of oil.  This causes oil prices to dip because of more supply and less demand.  Equity markets will spike (prices will rise).

P

Pending Home Sales

Pending Home Sales Index (PHSI) is a monthly housing market index released by the National Association of Realtors. The PHSI shows the number of sales in which a contract has been signed, but the transaction hasn’t yet closed; the closing process can take up to two months. The index is seen as a leading economic indicator of future existing home sales and is watched by stock market participants for clues about the health of the economy. The PHSI is more relevant than the monthly existing home sales, which documents the number of home sales by looking at mortgage closings.

Philadelphia Fed Survey

The “Philly Fed” is a regional manufacturing survey within the Philadelphia Federal Reserve district.  This survey is widely followed, because it is held as an indicator of manufacturing trends and is correlated with the ISM.  Traders use it to determine economic conditions in key markets.

PPI (Producer Price Index)

The PPI measures prices of goods at the wholesale, or manufacturing, level.  When inflation is low, this report loses some significance. However, when inflation crops up in the manufacturing sector, it moves in the “domino effect” and flows through to the consumer level and to the CPI (Consumer Price Index).

PMI (Purchasing Manager’s Index)

See “ISM Index”

Q

R

Retail Sales

This indicator reflects consumer spending by reporting the total from sales receipts at stores selling durable and nondurable merchandise.  Since consumer spending amounts to two-thirds of the GDP (Gross Domestic Product), it is considered as a vital component of economic expansion.

S

Same-Store Sales

Same-store sales is a financial metric that companies in the retail industry use to evaluate the total dollar amount of sales in the company’s stores that have been operating for a year or more. Same-store sales statistics provide a performance comparison for the established stores of a retail chain over a given time period, such as a fiscal year or quarter or a calendar year or quarter, comparing revenues for the current period to the same period in the past, for example, comparing first-quarter 2016 revenues to first-quarter 2015 revenues.

T

Treasury Budget

The U.S. Treasury Budget is a monthly update on the receipts and outlays of the federal government. If there is a deficit, the report details the mix of long, medium, and short maturity debt used to finance it. The monthly report is seen as a useful indicator of the government’s current financing needs, which influences market interest rates.

The monthly budget data has an impact on the financial markets, both directly and indirectly. Treasury securities are the most directly impacted by the monthly statement, particularly when the monthly budget shows a higher deficit.

U

V

W

X, Y, Z