Economic indicators are used by the Federal Reserve to monitor inflation. When they reflect inflationary pressure, the Fed will increase interest rates. Conversely, when they show signs of deflation, a decrease of interest rates becomes imminent.
Let me explain these and a few others terms to enhance your knowledge
of indicators that affect your investments.
1. Gross Domestic Product (GDP)
GDP measures the dollar value of all goods and services produced
within the borders of the United States, regardless of who owns the assets or the nationality of the labor used in producing that output.
Data are available in nominal and real dollars. Investors always monitor the real growth rates because they are adjusted to inflation.
2. Personal Income and Consumption
Also known as Personal Income and Outlays. Personal Income represents the income that households receive from all sources, including employment, self-employment, investments, and transfer payments.
Personal Outlays are consumer spending which is divided into durable goods, non- durable goods, and services.
3. Consumer Price Index (CPI)
An index that measures the change in price of a representative basket of goods and services such as food, energy, housing, clothing, transportation, medical care, entertainment and education. It's also known as the cost-of-living index.
4. Consumer Confidence Index
A survey of 5,000 consumers about their attitudes concerning the
present situation and expectations regarding economic conditions conducted.
5. Employment Cost Index (ECI)
The ECI is designed to measure the change in the cost of labor, including wages and salaries as well as benefits.
6. Employment Situation/ Non-farm payroll
This report lists the number of payroll jobs at all non-farm business establishments and government agencies. The unemployment rate, average hourly and weekly earnings, and the length of the average workweek are also listed in this report. This release is the single most closely watched economic statistic because of its timeliness, accuracy and its importance as an indicator of economic activity. Therefore, it plays a big role in influencing financial market psychology during the month.
7. Durable Goods Orders
Its official name is Advance Report on Durable Goods Manufacturers, Shipments and Orders. This is a government index that measures the dollar volume 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. Analysts usually exclude defense and transportation orders because of their volatility.
8. Producer Price Index (PPI)
The Producer Price Index (PPI) measures the average price of a fixed basket of capital and consumer goods at the wholesale level. There are three primary publication structures for the PPI: industry; commodity; and stage-of- processing.
9. Retail Sales
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. However, the data are adjusted for seasonal, holiday and trading-day differences between the months of the year.
10. International Trade
This report measures the difference between exports and imports of U.S. goods and services.
11. Industrial Production and Capacity Utilization
The Index of Industrial Production is a chain-weight measure of the physical output of the nation's factories, mines and utilities. The capacity utilization rate measures the proportion of plant and equipment capacity used in production by these industries.
12. ISM Manufacturing Index
The ISM Manufacturing Index is based on surveys of 300 purchasing managers nationwide representing 20 industries regarding manufacturing activity. It covers indicators as new orders, production, employment, inventories, delivery times, prices, export orders, and import orders.
13. ISM Services Index
Also know as the Non-Manufacturing ISM. This index is based on a survey of roughly 370 purchasing executives in industries including finance, insurance, real-estate, communications and utilities. It reports on business activity in the service sector.
14. Existing Home Sales
This report measures the selling rate of pre-owned houses. It's
considered a decent indicator of activity in the housing sector.
15. New Home Sales
Also known as New Single-Family Houses Sold. This report is based on interviews of about 10,000 builders or owners of about 15,000 selected building projects. It measures the number of newly constructed homes with a committed sale during the month.
16. Housing Starts and Building Permits
A measure of the number of residential units on which construction is begun each month.
17. Initial Claims
Definition: A government index that tracks the number of people filing first-time claims for state unemployment insurance.
