Economic indicators can be leading, lagging, or coincident which indicates the timing of their changes relative to how the economy as a whole changes.
Leading: Leading economic indicators are indicators which change before the economy changes. Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future.
Lagged: A lagged economic indicator is one that does not change direction until a few quarters after the economy does. The unemployment rate is a lagged economic indicator as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve.
Coincident: A coincident economic indicator is one that simply moves at the same time the economy does. The Gross Domestic Product is a coincident indicator.
Now we will list the most important US economic indicators followed by traders, investors and analysts.
Now we will list the most important US economic indicators followed by traders, investors and analysts.
- Non - Farm Payrolls
- ISM Manufacturing Index
- Consumer Price Index (CPI)
- Retail Sales
- Trade Balance or US Trade Deficit
- Personal Income and Consumption
- Gross Domestic Product - GDP
- Durable Goods Orders
- Producer Price Index (PPI)
- Industrial Production and Capacity Utilization
Non - Farm Payrolls
Description: As the names suggests this report lists the number of payroll jobs at all non-farm business establishments and governments agencies. This is the most closely watched economic release in the States. Coincident indicator of economic growth.
The greater the increase in employment, the faster the total economic growth. An increasing unemployment rates is associated with an expanding economy. The economy is considered to be at full employment when the unemployment rate is between 5.5% and 6.0 %. Average earnings are also measured in this report and if this rises sharply, it acts as a guide of potential inflationary pressures.
Release Date: 8:30 (EST); monthly, usually first Friday of every month.
ISM Manufacturing Index
Description: Based on surveys of 300 purchasing managers nationwide and represents 20 industries regarding manufacturing activity. The ISM Manufacturing index is considered to be the premier manufacturing indices. Readings of 50% or above are typically associated with an expanding manufacturing sector and healthy economy, while readings below 50 are associated with contraction.
The sub-components of the index are very important and it contains useful information about manufacturing activity. The production component is related to industrial production. The new orders to durable goods orders and employment to factory payrolls. Prices are linked to producer prices, export orders to merchandise trade exports and import orders to merchandise imports. The index is seasonally adjusted for greater accuracy.
Release Date: 10:00 (EST); monthly, first business day after reporting month.
Consumer Price Index (CPI)
Description: a consumer price index (CPI) is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. It is also known as a cost of living index. It's important to monitor the CPI excluding food and energy prices for its monthly stability. This is referred to as "core CPI" and gives a clearer picture of the underlying inflation trend. The rate of change of the core CPI is one of the key measures of inflation for the US economy. Inflationary pressure is generated when the core CPI posts larger than expected gains.
Release Date: 8:30 AM (EST); monthly.
Retail Sales
Description: this index measures the total sales of goods by all retail establishments in the U.S. (sales of services are not included). These figures are in current dollars, that is, they are not adjusted for inflation. It is the timeliest indicator of the broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.
Retail sales are the first picture of consumer spending for a given month. Retail sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. Retail sales can be quite volatile and the advance reports are subject to large revisions. Data is revised three months back every month and can be substantial.
Release Date:8:30 AM (EST); monthly, midmonth and approximately two weeks following the reporting month's end.
Trade Balance or US Trade Deficit
Description: this report measures the difference between exports and imports of US goods and services. The trade report is most widely watched for trends in the overall trade balance. This report is significant as imports and exports are important components of aggregate economic activity, representing approximately 14 and 12 percent of GDP respectively.
Changes in the trade balance with particular countries can have implications for foreign exchange and policy with that trading partner. Therefore, this report is of importance to investors who are interested in diversifying globally.
Release Date: 8:30 AM (EST); monthly.
Personal Income and Consumption
Description: Personal Spending, also known as PCE, represents the change in the market value of all goods and services purchased by individuals. This is the largest component of GDP. Personal Income represents the income that households receive from all sources, including employment, self-employments, investments, and transfer payments. Income is the major factor in regards to spending and US consumers spend approximately 95 cents of each new dollar. Consumer spending accounts for two-thirds of the economy and greater spending stimulates corporate profits as well as benefiting the stock market.
This indicator has gained further credibility in February 2000 when the FOMC began forecasting inflation in terms of the personal consumption expenditures deflator (PCE Deflator, a component of the report). So basically the FOMC prefers the PCE Deflator rather than the CPI.
Release Date: Released first business day of the month at 8.30 am New York time.
Gross Domestic Product - GDP
Description: Gross Domestic Product (GDP) is the broadest measure of economic activity. GDP measures the dollar value of all goods and services within the borders of the United States, regardless of who owns the assets or the nationality of the labor used in producing the output. Strong GDP growth is between 2.0% and 2.5%. A higher GDP growth will lead to quicker inflation, while lower growth indicates a soft economy.
Quarterly GDP reports are broken down into three announcements: advance, preliminary and final. After the final revision, GDP is not revised again until the annual benchmark revisions each July.
Release Date: 8:30 AM (EST); Figures released monthly, around the 4th week following the reported month.
Durable Goods Orders
Description: This is a government index that measures the dollar volumes of orders, shipments, and unfilled orders of durable goods. Durable goods are new or used items generally with a normal life expectancy of three years or more. The report provides information on the strength of demand for US manufactured durable goods, from both domestic and foreign sources. A rising index suggests demand is strengthening and will result is rising production and employment. A falling index suggests the opposite.
Durable Goods Orders are considered a leading indicator of manufacturing activity, and the market moves on this report despite the volatility and large revisions that make it a less than perfect indicator. Analysts usually exclude defense and transportation orders because of their volatility. The report is also one of the earliest indictors of both consumer and business demand for equipment. Increased expenditures on investment goods reduce the prospect of inflation.
Release Date: 8:30 AM (EST); monthly, 3 to 4 weeks after the reporting month.
Producer Price Index (PPI)
Description: The Producer Price Index measures prices of goods at the wholesale level. There are three broad subcategories within the PPI: industry; commodity; and stage-of-processing. At all stages of production, the market places more emphasis on the index excluding food and energy and this is referred to as core PPI. Core PPI gives a clearer picture of the underlying inflation trend. Changes in the core PPI are considered a precursor of consumer price inflation. Inflationary pressure is generated when the core PPI posts larger-than-expected gains.
The index is not revised on a monthly basis, but annual revisions to seasonal adjustment factors can produce small adjustments to past releases.
Release Date: 12:30 (GMT); monthly, 2 weeks after the reporting month.
Industrial Production and Capacity Utilisation
Description: The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines and utilities. This report is combined with capacity utilization which is seen as a critical gauge of the slack available in the economy. The industrial sector of the economy represents approximately 25 percent of GDP. Changes in GDP are heavily concentrated in the industrial sector. Therefore, changes in the index of industrial production provide useful information on the current growth of GDP. Investors use the capacity utilization rate as an inflation indicator. If it gets above 85%, inflationary pressures are generated.
The data are revised monthly for the prior three months to reflect more complete information. New seasonal adjustment factors are introduced in December. The revision affects at least three years worth of data and its significance is moderate.
Release Date: 9:15 AM (EST); Monthly, approximately 15 days following the reporting
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