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Economic Indicators

 

  

Beige Book

The Beige Book is a report on economic conditions that is released two weeks prior to each FOMC meeting, and is carefully reviewed by the Fed to decide interest rate policy. If the Beige Book shows inflationary pressures, the Fed will be more inclined to raise interest rates to slow down the overheating economy. If the Beige Book shows signs of recession, the Fed may lower interest rates to stimulate the economy.

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BTM Chain Store Sales

This weekly report on chain store sales is considered an important indication of how consumer demand is holding up. If spending slows, production will slow and job cuts will increase, causing even more slowing in spending. Its a vicious cycle that is very dependent on high consumption. Consumer spending accounts for two-thirds of the economy, and is the piece of the puzzle that has been keeping us out of a more severe recession.

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Business Inventories
 
Comparing Business Inventories in relation to sales can be a good indicator for judging the amount of productivity we will see in the near future. If businesses become more optimistic about future sales, they will increase production and inventories, so rising inventories in that case would be a positive sign for our economy. If however inventories are rising because sales are not meeting expectations, that would mean production will need to be slowed down until the inventories are sold off, which would be a bad sign.

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Challenger Report

This monthly report tracks the number of layoffs, breaking them down into industries. This helps us gauge the strength of the overall jobs market, as well as individual sectors. To keep the spending machine grinding, we need people working as much as possible and earning money to spend. The more layoffs there are, the less people will be working.

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Construction Spending

This monthly report measures Construction Spending. During this recession, the economy has been held up to a large extent by the housing market. There is a lot of scepticism about how long the housing market can hold up however, and a lot of concern about a possible housing bubble, so housing and construction numbers are increasingly important. Businesses and individuals will not normally buy or build houses when they are feeling uncertain about the future, so this is also a good indicator of consumer confidence.

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Consumer Installment Credit 

This monthly report measures Consumer Installment Credit. Consumer Credit is a two-edged sword. On one hand the economy will be stimulated by the spending that growing debt affords. On the other hand, consumers can only take on so much debt before they buckle under. Once their debt load is maxed out, that leaves less demand for consumer goods. This indicator tends to be longer-term, but it is an important one for our nation's future.

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Consumer Price Index
 
The consumer price index is the most widely followed indicator of inflation. This monthly report tells us at what percentage prices are rising. This will determine interest rates because lenders will want to figure in the rate of inflation, in addition to their profits on the loan. So this has a trickle effect on everything from mortgage and car loans, to Treasury bonds and T-bills.

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Consumer Sentiment Index , University of Michigan (MCSI)

This is an indicator of how confident consumers are feeling both in the present, and their expectations for the future. The more confident they are, the more they will spend. With 2/3 of GDP reliant on consumers, this is often an important, and market-shaking report.

This survey is conducted by the University of Michigan. Five hundred consumers are surveyed each month. A preliminary survey is usually reported on the second Friday of the month, and a more complete survey is then reported two weeks later.

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Consumer Confidence Index, Conference Board

This is an indicator of how confident consumers are feeling both in the present, and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The more confident they are, the more they will spend. With 2/3 of GDP reliant on consumers, this is often an important, and market-shaking report.

This survey is conducted by the Conference Board. Five thousand households are surveyed each month. The report is released on the last Tuesday of each month. Only index changes of at least five points are considered significant.

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Current Account

The Current Account is a quarterly report of the net balance of international trade, including goods, services, and interest payments. A trade imbalance creates greater demand for foreign currencies, directly impacting the foreign exchange value of the dollar.

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Durable Goods Orders

Monthly report. Orders for durable goods show how busy  manufacturers will be in the months to come, as they work to fill those orders.

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Employment Cost Index

The employment cost index is a quarterly report that tracks trends in wages. If labor costs rise, prices will go up to accommodate the increase. This is something closely tracked by the Federal Reserve to identify wage inflation.

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Employment Situation (Unemployment Report)
 
This is an extremely important and closely watched gauge of economic strength. In addition to telling us how many people are working, it also provides insight into wage trends and wage inflation. To keep the spending machine grinding, we need people working as much as possible and earning money to spend.

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Existing Home Sales

Another important housing number. See above. This is a gauge of the demand for housing, which translates into other areas of the economy as well, through home construction, furniture sales, etc. During this recession, the economy has been held up to a large extent by the housing market and refinancing market. There is a lot of scepticism about how long the housing market can hold up however, with weakening jobs numbers, and a lot of concern about a possible housing bubble, so housing numbers are increasingly important.

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European Central Bank Policy Meeting Announcement

The European Central Bank is the equivalent to the US Federal Reserve. The Governing Council, comprised of 6 members of the Executive Council and 12 presidents of member central banks, collectively decides interest rate policy for the European Union.

This determines the lending rate banks charge each other, and it serves as benchmark for all other rates. When rates are low, sales of autos, homes, etc, will be higher, and more investment dollars will go into the stock market. This has the effect of stimulating the economy. When rates are higher, sales will go down, and bonds will become more attractive investments, because of higher yields. This has a slowing effect on the economy.
 
So low rates are bullish for the stock market, and higher rates are bearish. The market reactions however are dependent on the action compared to the expectations. If the action is exactly what we all expected, most often we won't see much movement in the market. If the action is against expectations however, the reaction can be very dramatic, and swift.

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Factory Orders

The Factory Orders report shows how busy factories will be in coming months as they work work to fill those orders. This includes demand for both durables (autos, appliances) and nondurables (clothes). This is an important indication of how consumer demand is holding up.

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FOMC Meeting Policy Announcement
 
The federal funds rate is set by the Fed. This is the lending rate banks charge each other, and it serves as benchmark for all other rates including Treasury bonds and mortgage loans. When rates are low, sales of autos, homes, etc, will be higher, and more investment dollars will go into the stock market. This has the effect of stimulating the economy. When rates are higher, sales will go down, and bonds will become more attractive investments, because of higher yields. This has a slowing effect on the economy.
 
So low rates are bullish for the stock market, and higher rates are bearish. The market reactions however are dependent on the action compared to the expectations. If the action is exactly what we all expected, most often we won't see much movement in the market. If the action is against expectations however, the reaction can be very dramatic, and swift. Please use caution in that case, because pace of trading will often be frenetic and quotes lagged.

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Gross Domestic Product

GDP is the overall measure of economic activity. Its components include consumer spending, business and residential investment, and price indexes.

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Help Wanted Index

This report gives us a sense of how many jobs employers are trying to fill. If there is a large number of available jobs, wages will be driven up, leading to higher wage inflation.

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Housing Starts
 
This is another gauge of the demand for housing, which translates into other areas of the economy as well, through home construction, furniture sales, etc. During this recession, the economy has been held up to a large extent by the housing market. There is a lot of scepticism about how long the housing market can hold up however, with weakening jobs numbers, and a lot of concern about a possible housing bubble, so housing numbers are increasingly important.

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Import & Export Prices

By keeping an eye on Import and Export Prices, we can monitor inflation. If we are hit with inflation, interest rates will go up. If interest rates go up, consumer spending will slow, which is naturally bad for the economy and stock prices.

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Index of Leading Indicators 

This index is meant to predict turning points in the economy, such as recessions and recoveries. Its accuracy has been called into question however over the last 10 years. Because the index focuses more on manufacturing than on service industries, it has been more helpful in identifying turning points in industrial production rather than the economy in general.

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Industrial Production and Capacity Utilization Rate
 
The capacity utilization rate is an estimate of how much factory capacity is in use. Industrial production shows how much factories, mines and utilities are producing. Utilization rates above 85% can lead to inflation. When supply is constrained, prices increase. Because of that, this is a report watched closely by the Federal Reserve, and can shake the bond market.

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International Trade
 
Imports are the demand for foreign goods and services in the U.S. Exports are the demand for U.S. goods in overseas countries. The difference between the two is our "Trade Balance". This trade balance will greatly influence the value of the dollar, since it determines demand for foreign currencies.

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ISM Manufacturing Index

(formerly known as NAPM Survey)

This is a widely watched and important report because of its early and accurate reflection of the manufacturing sector, and the PMI's close correlation with the entire economy. This report is based on data compiled from monthly surveys asked of purchasing executives in more than 400 industrial companies. There are several different indicators measured, including New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Employment, and Prices.

The PMI is the major element of the Manufacturing ISM. The PMI is a composite index based on five of the indicators (New Orders, Production, Supplier Deliveries, Inventories, and Employment) with varying weights. A PMI reading above 50% indicates that the manufacturing economy is generally expanding, while a reading below 50% indicates that it is generally declining.

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ISM Non-Manufacturing Index for November

(formerly known as Non-Manufacturing NAPM)

This is a report on business activity in the non-manufacturing sector. The Non-Mfg. index is similar to the Manufacturing index, but is concentrated in the services sector, as well as things like construction, mining, and transportation.


There are 10 separate indexes reported, but Business Activity is the most important. The other nine indexes are: New Orders, Supplier Deliveries, Employment, Inventories, Prices, Backlog of Orders, New Export Orders, Imports, and Inventory Sentiment. The non-manufacturing NAPM is subject to monthly volatility, making the three month average of the monthly levels more indicative of the trend, but readings above 50% generally indicate an expanding economy.

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Jobless Claims

Unemployment is an important indicator because if people are not working, they obviously can not spend money, and consumer spending drives our economy.

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LJR Redbook

This is also considered a close indicator of consumer spending.

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Mortgage Bankers Association Purchase Applications Index

This is a gauge of the demand for housing, which translates into other areas of the economy as well, through home construction, furniture sales, etc. During this recession, the economy has been held up to a large extent by the housing market and refinancing market. There is a lot of scepticism about how long the housing market can hold up however, with weakening jobs numbers, and a lot of concern about a possible housing bubble, so housing numbers are increasingly important.

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Motor Vehicle Sales

This monthly auto sales report shows the sales trends for auto makers, which also weighs on other auto-related companies. Consumer spending has played a large role in holding up our economy during recession. A lot of the consumer spending has been in automobiles, spurred by low interest rates, which makes this an important economic indicator. Because automobiles are generally financed, this number is also an indicator of consumer confidence.

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New Home Sales

This monthly report is a gauge of the demand for housing, which translates into other areas of the economy as well, through home construction, furniture sales, etc. During recession, the economy has been held up to a large extent by the housing market and refinancing market. There is a lot of scepticism about how long the housing market can hold up however, with weakening jobs numbers, and a lot of concern about a possible housing bubble, so housing numbers are increasingly important.

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Personal Income & Consumption

Without income, consumers can not spend. That consumption accounts for two-thirds of the economy, so these numbers are important indications of where we are headed.

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Philadelphia Fed Survey
 
The Philly Fed survey is a detailed report on the manufacturing sector, which accounts for one-quarter of the economy. This report is also an important indication of what is to come because it is released early in the month, before other important indicators.

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PMAC Survey - NAPM-Chicago

This report gives a detailed look at the Chicago region's manufacturing sector. It is seen as a close indicator for manufacturing in general, which accounts for one-quarter of the economy, and is closely watched by the Federal Reserve.

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Producer Price Index

The Producer Price Index monitors price changes in manufacturing. A lot like the Consumer Price Index, this is a gauge to help us measure inflation by telling us what percentage rate prices are rising. This will determine interest rates because lenders will want to figure in the rate of inflation, in addition to their profits on the loan. So this has a trickle effect on everything from mortgage and car loans, to Treasury bonds and T-bills.

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Productivity and Costs

If productivity growth remains high, our economy can grow faster, without the threat of 

inflation. So this becomes an important indicator to watch when there is concern for inflationary pressures.
 
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Retail Sales

Our economy is very dependent on high consumption. Consumer spending accounts for two-thirds of our economy. Retail sales data tracks general spending, and spending trends within the different types of retailers. The consumer has kept us out of a more serious recession, but has taken on an overwhelming debt load in the process. With interest rates coming down, all eyes are watching to see whether the spending machine can keep moving along.

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Treasury Budget

Treasury bonds are the government's way of borrowing money. The deficit in the Treasury Budget determines how many bonds they need to sell. The higher the deficit, the more bonds they need to sell. With that increase in supply then, prices will go down. If the supply is decreased, prices will go up. Higher prices in bonds means lower yields, so the government is borrowing money at lower interest rates. That creates a general lower interest-rate environment, which is bullish for stocks. So we want a small deficit.

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Wholesale Trade


This report tracks wholesale sales and inventory data. While this says very little about current consumer spending, it does give us a deeper look behind the scenes, which could indicate future consumer trends.
By watching sales data, and comparing it to inventory data, we can get an idea of future production. If businesses become more optimistic about future sales, they will increase inventories, which will increase production. So rising inventories in that case would be a positive sign for our economy. If however inventories are rising because sales are not meeting expectations, that would mean production will need to be slowed down until the inventories are sold off, which would be a bad sign. So it is important to evaluate the data together, and understand the reasons behind the changes.

 

 

 

 

 

 

 

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