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APICS Survey – Composite diffusion index of national manufacturing conditions. The APICS survey gives a detailed look at the manufacturing sector. This survey is less well known that the ISM, but can also indicate trends in production. The diffusion index does not move in tandem with the ISM index every month, but sometimes the two do move in the same direction. Since manufacturing is a major sector of economy, investors can get a feel for the general economic backdrop for various investments. An index level of 50 means no growth, but every 10 points signals gains of 4% in manufacturing.
Business Inventories – Dollar amount of inventories held by manufacturers, wholesalers and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. The business inventory data provide a valuable forward-looking tool for tracking the economy.
Chain Stores Sales – Monthly sales volumes from department, chain, discount and apparel stores. Sales are reported by the individual retailers. Chain store sales are an indicator of retail sales and consumer spending results. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you will have a pretty good handle on where the economy is headed. Sales are reported as a change from the same month a year ago. It is important to know how strong sales actually were a year ago to make sense of this year’s sales. In addition, sales are usually reported for “comparable stores” in case of company mergers.
Construction Spending – Dollar value of the new construction activity on residential, non-residential and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Businesses only put money into construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home. That’s why construction spending is a good indicator of the economy’s momentum.
Consumer Confidence – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by The Conference Board. Five thousand consumers across the country are surveyed each month. The level of consumer confidence is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how this index of consumer attitudes gives insight to the direction of the economy. Changes in consumer confidence and retail sales don’t move in tandem month by month.
Consumer sentiment – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. Five hundred consumers are surveyed each month. The level of consumer sentiment is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how the index of consumer attitudes gives insight to the direction of the economy. Changes in consumer sentiment and retail sales don’t move in tandem month by month.
Consumer Price Index (CPI) – Measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The CPI is the most followed indicator of inflation in the United States. Inflation is a general increase in the price of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets. By tracking the trends in inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform.
Current account – Measure of the country’s international trade balance in goods, services and unilateral transfers. The level of the current account, as well as the trends in exports and imports, are followed as indicators of trends in foreign trade. U.S. trade with foreign countries hold important clues to economic trends here and abroad. The data can directly impact all the financial markets, but especially the foreign exchange value of the dollar.
Beige Book - District banks have been printing summaries of the economic conditions in their districts since 1970. Initially this “Red Book” was prepared for policymakers only and was not intended for public consumption. It was made public in 1983. To mark this change, the color of the cover was changed and the publication became known as the Beige Book. The Beige Book is released two weeks prior to each FOMC meeting 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 businessmen, 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 report is primarily seen as an indicator of how the Fed might act at its upcoming meeting.
Green Book - The green book is prepared by staff members at the Board of Governors five days in advance of an FOMC meeting. It presents the staff’s interpretations on several economic and financial variables and is divided into two parts. The first part of the green book describes and interprets significant developments in U.S. economic activity, prices, interest rates, flows of money and credit, and the international sector that have occurred in recent months or quarters. This section also presents forecasts of a number of variables for the next six to eight quarters. The second section of the green book provides additional information on recent developments. It describes trends in employment, production, and prices and the factors influencing them. This section also includes sector-by-sector analyses, commenting on such areas as housing, motor vehicle production, inventories, and spending by federal, state, and local governments. It reviews a range of developments in domestic financial markets, including credit patterns for banks, other financial intermediaries, non-financial businesses, and consumers. Finally, international developments are reviewed, with commentary on trade statistics, international financial transactions, foreign exchange markets, and economic activity in a number of foreign countries.
Blue Book – A day after the green book, the FOMC members receive the blue book. All blue books present the Board staff’s view of monetary and financial developments for the few months surrounding the meeting in question. Each book first reviews recent developments in policy variables, including the Federal Funds rate, reserve measures, and the monetary aggregates. The blue book also presents two or three alternative policy scenarios for the upcoming inter-meeting period. The blue books written for the February and July meetings contain two extra sections to assist the Committee in its preparation for the Humphrey-Hawkins testimony. The first of these sections provides longer term simulations, covering the next five or six years. This section also offers estimates of how different assumptions about factors such as fiscal policy, the equilibrium unemployment rate, or the speed of adjustment to changed inflationary expectations would affect the predicted outcome. The second additional section in the February and July blue books sets out alternative annual ranges for growth of the monetary aggregates.
Red Book - Published every Tuesday, this report presents the detail sales of some 30 US stores produce the previous week and compared to the previous month. It is always a forecast which counts for the request of the households but a rather volatile measurement taking into consideration the more or less significant months for the detail business.
Durable goods order – The durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hardwoods. Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provides insight to demand for things like refrigerators and cars, but also business investment going forward. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduce the prospects for inflation. It tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.
Existing home sales – Number of previously constructed homes with a closed sale during the month. Existing homes (also known as home resales) are a large share of the market than new homes and indicate housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Even though home resales don’t always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. In a more specific sense, trends in the existing home sales date carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Factory orders – Dollar level of new orders for manufacturing durable goods and nondurable goods. It gives more complete information than durable goods orders which are reported one or two weeks earlier in the month. The orders data show how busy factories will be in coming months as manufacturers work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in production. Shipments reveal current sales. Inventories give a handle on the strength of current and future production. All in all, this report tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.
Gross Domestic Product (GDP) – The sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country’s economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth. Investors need to closely track the economy because it usually dictates how investments will perform. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components like consumer spending, business and residential investments and price (inflation) indexes illuminate the economy’s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Housing starts – Housing starts measure the number of residential units on which construction is begun each month. Home builders don’t start a house unless they are fairly confident it will sell upon or before its competition. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture and landscaping are just a few things new home buyers might spend money on, so the economic “ripple effect” can be substantial especially when you think of it in terms of a hundred thousand new households around the country doing this every month. Trends in the housing starts date carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
IFO Business Climate in industry and trade – The IFO Business Climate Index is a widely early indicator for economic development in Germany. Every month the IFO Institute surveys more than 7,000 enterprises in west and east Germany on their appraisals of the business situation (good/satisfactory/poor) and their expectations for the next six months (better/same/worse). The replies are weighted according to the importance of the industry and aggregated. The percentage shares of the positive and negative responses to both questions are balanced and a geometric mean is formed from the balances divided according to east and west Germany. The series of balances thus derived are linked to a base year (currently 1991) and seasonally adjusted.
Import and export prices – The prices of goods that are brought in the United States but produced abroad and the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products. Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar. Inflation leads to higher interest rates and that’s bad news for stocks as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolio.
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 reflects the usage of available resources. Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Industrial production show how much factories, mines and utilities are producing. Since the manufacturing sector accounts for one-quarter of the economy, this report has a big influence on market behaviour. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high (above 85%) it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures.
International Trade – Measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. Furthermore, the data can directly impact all the financial markets, but especially the foreign exchange value of the dollar. Imports indicate demand for foreign goods and services here and the US exports show the demand for US goods in overseas countries. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. This report gives a breakdown of US trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.
Institute for Supply Management (ISM) – Formerly known as the NAPM. Change was effective in January 2002. ISM is a composite diffusion index of national manufacturing conditions. Readings above 50% indicate an expanding factory sector. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic date like the ISM, investors will know what the economic backdrop is for the various markets. The ISM gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data.
Jobless Claims – A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. This indicator, and more importantly, its four-week moving average, portends in the labor market. Jobless claims are an easy way to gauge the strength of the job market. The fewer people filling for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income which gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so the stronger the job market, the healthier the economy. By tracking the number of jobless claims, investors can gain a send of how tight the job market is. If wage inflation threatens, it’s a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events. The lower the number of unemployment claims, the stronger the job market is, and vice versa.
Leading Indicators – A composite index of ten economic indicators that typically lead overall economic activity. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The index of Leading Indicators is designed to predict turning points in the economy such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index.
Money supply – The monetary aggregates are alternative measures of the money supply by degree of liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as well as the outlook for economic activity and inflationary pressures. The monetary aggregates (know individually as M1, M2 and M3) used to be all the rage a few years back because the data revealed the Fed’s (tight or loose) hold on credit conditions in the economy. The Fed issues target ranges for money supply growth. In the past, if actual growth moved outside those ranges it often was a prelude to an interest rate move from the Fed. Today, monetary policy is understood more clearly by the level of the federal funds rate. Money supply fell out of vogue in the nineties, due to a variety of changes in the financial system and the way the Federal Reserve conducts monetary policy. The Fed is working on some new measures of money supply, and given the way economic indicators ebb and flow in popularity, don’t be surprised if the monetary aggregates make a comeback in the future.
New home sales – The number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. Trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Nonfarm Payroll – The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time and full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. This is without a doubt the economic report that move the markets the most. The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they’re getting paid and how many hours they are working. These numbers are the best way to gauge the current state and future direction of the economy. They also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. By tracking the jobs data, investors can sense the degree of tightness in the job market.
Personal Income – Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods and services. The income and outlays data are another handy way to gauge the strength of the economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed. Needless to say, that’s a big advantage for investors.
Philadelphia Fed Survey – A composite diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey is widely followed as an indicator of manufacturing sector trends since it is correlated with the ISM survey and the index of industrial production. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behaviour. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation.
Purchasing Managers Index (PMI) - The National Association of Purchasing Managers (NAPM), now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders. It is divided into manufacturing and non-manufacturing sub-indices.
Producer Price Index (PPI) – PPI is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. The PPI measures price changes in the manufacturing sector. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. Inflation at this producer level often gets passed through to the consumer price index (CPI). The relationship between inflation and interest rates is the key to understanding how data like the PPI influence the markets and your investments.
Retail Sales – Retail sales measure the total receipts at stores that sell durable and nondurable goods. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales date can help you spot specific investment opportunities, without having to wait for a company’s quarterly or annual report.
Retail Prices Index (RPI) - The RPI is the UK’s principal measure of consumer price inflation. It is defined as an average measure of change in the prices of goods and services brought for the purpose of consumption by the vast majority of households in the UK. It is complied and published monthly. Once published, it is never revised. RPI includes date on food and drink, tobacco, housing, household goods and services, personal goods and services, transport fares, motoring costs, clothing and leisure goods and services. Measures of inflation are vital tools for economists, business and government. The Bank of England’s Monetary Policy Committee sets UK interest rates on the basis of a target figure for inflation set by Chancellor of the Exchequer. Wage agreements, pensions and change in benefit levels are often linked directly to the RPI. Utility regulators impose restrictions on price movements based on the RPI.
Trade Balance - The balance of trade is a statement of a country’s trade in goods (merchandise) and services. It covers trade in products such as manufactured goods, raw materials and agricultural goods, as well as travel and transportation. The balance of trade is the difference between the value of the goods and services that a country exports and the value of the goods and services that it imports. If a country’s exports exceed its imports, it has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country has a trade deficit and its trade balance is said to be negative.
The balance of trade sometimes refers to trade in goods only. The term should not be confused with the balance of payments, which is a much broader statement of international monetary flows, including not only trade in goods and services, but also investment income flows and transfer payments. A positive or negative balance may simply reflect a change in the relative cost of domestic products compared with international prices. For industries that rely heavily on exports, like the auto sector, a positive balance of trade may reflect a higher international demand, which can mean more jobs in that industry.
Unemployment rate - Percentage of employable people actively seeking work, out of the total number of employable people determined in a monthly survey by the Bureau of Labor Statistics. An unemployment rate of about 4% - 6% is considered “healthy”. Lower rates are seen as inflationary due to the upward pressure on salaries; higher rates threaten a decrease in consumer spending.
Major Indicators
APICS Survey – Composite diffusion index of national manufacturing conditions. The APICS survey gives a detailed look at the manufacturing sector. This survey is less well known that the ISM, but can also indicate trends in production. The diffusion index does not move in tandem with the ISM index every month, but sometimes the two do move in the same direction. Since manufacturing is a major sector of economy, investors can get a feel for the general economic backdrop for various investments. An index level of 50 means no growth, but every 10 points signals gains of 4% in manufacturing.
Business Inventories – Dollar amount of inventories held by manufacturers, wholesalers and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. The business inventory data provide a valuable forward-looking tool for tracking the economy.
Chain Stores Sales – Monthly sales volumes from department, chain, discount and apparel stores. Sales are reported by the individual retailers. Chain store sales are an indicator of retail sales and consumer spending results. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you will have a pretty good handle on where the economy is headed. Sales are reported as a change from the same month a year ago. It is important to know how strong sales actually were a year ago to make sense of this year’s sales. In addition, sales are usually reported for “comparable stores” in case of company mergers.
Construction Spending – Dollar value of the new construction activity on residential, non-residential and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Businesses only put money into construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home. That’s why construction spending is a good indicator of the economy’s momentum.
Consumer Confidence – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by The Conference Board. Five thousand consumers across the country are surveyed each month. The level of consumer confidence is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how this index of consumer attitudes gives insight to the direction of the economy. Changes in consumer confidence and retail sales don’t move in tandem month by month.
Consumer sentiment – Survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. Five hundred consumers are surveyed each month. The level of consumer sentiment is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it’s easy to see how the index of consumer attitudes gives insight to the direction of the economy. Changes in consumer sentiment and retail sales don’t move in tandem month by month.
Consumer Price Index (CPI) – Measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The CPI is the most followed indicator of inflation in the United States. Inflation is a general increase in the price of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets. By tracking the trends in inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform.
Current account – Measure of the country’s international trade balance in goods, services and unilateral transfers. The level of the current account, as well as the trends in exports and imports, are followed as indicators of trends in foreign trade. U.S. trade with foreign countries hold important clues to economic trends here and abroad. The data can directly impact all the financial markets, but especially the foreign exchange value of the dollar.
Beige Book - District banks have been printing summaries of the economic conditions in their districts since 1970. Initially this “Red Book” was prepared for policymakers only and was not intended for public consumption. It was made public in 1983. To mark this change, the color of the cover was changed and the publication became known as the Beige Book. The Beige Book is released two weeks prior to each FOMC meeting 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 businessmen, 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 report is primarily seen as an indicator of how the Fed might act at its upcoming meeting.
Green Book - The green book is prepared by staff members at the Board of Governors five days in advance of an FOMC meeting. It presents the staff’s interpretations on several economic and financial variables and is divided into two parts. The first part of the green book describes and interprets significant developments in U.S. economic activity, prices, interest rates, flows of money and credit, and the international sector that have occurred in recent months or quarters. This section also presents forecasts of a number of variables for the next six to eight quarters. The second section of the green book provides additional information on recent developments. It describes trends in employment, production, and prices and the factors influencing them. This section also includes sector-by-sector analyses, commenting on such areas as housing, motor vehicle production, inventories, and spending by federal, state, and local governments. It reviews a range of developments in domestic financial markets, including credit patterns for banks, other financial intermediaries, non-financial businesses, and consumers. Finally, international developments are reviewed, with commentary on trade statistics, international financial transactions, foreign exchange markets, and economic activity in a number of foreign countries.
Blue Book – A day after the green book, the FOMC members receive the blue book. All blue books present the Board staff’s view of monetary and financial developments for the few months surrounding the meeting in question. Each book first reviews recent developments in policy variables, including the Federal Funds rate, reserve measures, and the monetary aggregates. The blue book also presents two or three alternative policy scenarios for the upcoming inter-meeting period. The blue books written for the February and July meetings contain two extra sections to assist the Committee in its preparation for the Humphrey-Hawkins testimony. The first of these sections provides longer term simulations, covering the next five or six years. This section also offers estimates of how different assumptions about factors such as fiscal policy, the equilibrium unemployment rate, or the speed of adjustment to changed inflationary expectations would affect the predicted outcome. The second additional section in the February and July blue books sets out alternative annual ranges for growth of the monetary aggregates.
Red Book - Published every Tuesday, this report presents the detail sales of some 30 US stores produce the previous week and compared to the previous month. It is always a forecast which counts for the request of the households but a rather volatile measurement taking into consideration the more or less significant months for the detail business.
Durable goods order – The durable goods orders reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hardwoods. Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data not only provides insight to demand for things like refrigerators and cars, but also business investment going forward. If companies commit to spending more on equipment and other capital, they are obviously experiencing sustainable growth in their business. Increased expenditures on investment goods set the stage for greater productive capacity in the country and reduce the prospects for inflation. It tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.
Existing home sales – Number of previously constructed homes with a closed sale during the month. Existing homes (also known as home resales) are a large share of the market than new homes and indicate housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Even though home resales don’t always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. In a more specific sense, trends in the existing home sales date carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Factory orders – Dollar level of new orders for manufacturing durable goods and nondurable goods. It gives more complete information than durable goods orders which are reported one or two weeks earlier in the month. The orders data show how busy factories will be in coming months as manufacturers work to fill those orders. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but nondurables such as cigarettes and apparel. In addition to new orders, analysts monitor unfilled orders, an indicator of the backlog in production. Shipments reveal current sales. Inventories give a handle on the strength of current and future production. All in all, this report tells investors what to expect from the manufacturing sector, a major component of the economy and therefore a major influence on their investments.
Gross Domestic Product (GDP) – The sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country’s economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth. Investors need to closely track the economy because it usually dictates how investments will perform. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components like consumer spending, business and residential investments and price (inflation) indexes illuminate the economy’s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Housing starts – Housing starts measure the number of residential units on which construction is begun each month. Home builders don’t start a house unless they are fairly confident it will sell upon or before its competition. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture and landscaping are just a few things new home buyers might spend money on, so the economic “ripple effect” can be substantial especially when you think of it in terms of a hundred thousand new households around the country doing this every month. Trends in the housing starts date carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
IFO Business Climate in industry and trade – The IFO Business Climate Index is a widely early indicator for economic development in Germany. Every month the IFO Institute surveys more than 7,000 enterprises in west and east Germany on their appraisals of the business situation (good/satisfactory/poor) and their expectations for the next six months (better/same/worse). The replies are weighted according to the importance of the industry and aggregated. The percentage shares of the positive and negative responses to both questions are balanced and a geometric mean is formed from the balances divided according to east and west Germany. The series of balances thus derived are linked to a base year (currently 1991) and seasonally adjusted.
Import and export prices – The prices of goods that are brought in the United States but produced abroad and the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products. Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar. Inflation leads to higher interest rates and that’s bad news for stocks as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolio.
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 reflects the usage of available resources. Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. Industrial production show how much factories, mines and utilities are producing. Since the manufacturing sector accounts for one-quarter of the economy, this report has a big influence on market behaviour. The capacity utilization rate provides an estimate of how much factory capacity is in use. If the utilization rate gets too high (above 85%) it can lead to inflationary bottlenecks in production. The Federal Reserve watches this report closely and sets interest rate policy on the basis of whether production constraints are threatening to cause inflationary pressures.
International Trade – Measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. Furthermore, the data can directly impact all the financial markets, but especially the foreign exchange value of the dollar. Imports indicate demand for foreign goods and services here and the US exports show the demand for US goods in overseas countries. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. This report gives a breakdown of US trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.
Institute for Supply Management (ISM) – Formerly known as the NAPM. Change was effective in January 2002. ISM is a composite diffusion index of national manufacturing conditions. Readings above 50% indicate an expanding factory sector. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic date like the ISM, investors will know what the economic backdrop is for the various markets. The ISM gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data.
Jobless Claims – A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. This indicator, and more importantly, its four-week moving average, portends in the labor market. Jobless claims are an easy way to gauge the strength of the job market. The fewer people filling for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income which gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so the stronger the job market, the healthier the economy. By tracking the number of jobless claims, investors can gain a send of how tight the job market is. If wage inflation threatens, it’s a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events. The lower the number of unemployment claims, the stronger the job market is, and vice versa.
Leading Indicators – A composite index of ten economic indicators that typically lead overall economic activity. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The index of Leading Indicators is designed to predict turning points in the economy such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index.
Money supply – The monetary aggregates are alternative measures of the money supply by degree of liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as well as the outlook for economic activity and inflationary pressures. The monetary aggregates (know individually as M1, M2 and M3) used to be all the rage a few years back because the data revealed the Fed’s (tight or loose) hold on credit conditions in the economy. The Fed issues target ranges for money supply growth. In the past, if actual growth moved outside those ranges it often was a prelude to an interest rate move from the Fed. Today, monetary policy is understood more clearly by the level of the federal funds rate. Money supply fell out of vogue in the nineties, due to a variety of changes in the financial system and the way the Federal Reserve conducts monetary policy. The Fed is working on some new measures of money supply, and given the way economic indicators ebb and flow in popularity, don’t be surprised if the monetary aggregates make a comeback in the future.
New home sales – The number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. Trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Nonfarm Payroll – The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time and full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. This is without a doubt the economic report that move the markets the most. The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they’re getting paid and how many hours they are working. These numbers are the best way to gauge the current state and future direction of the economy. They also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. By tracking the jobs data, investors can sense the degree of tightness in the job market.
Personal Income – Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods and services. The income and outlays data are another handy way to gauge the strength of the economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed. Needless to say, that’s a big advantage for investors.
Philadelphia Fed Survey – A composite diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey is widely followed as an indicator of manufacturing sector trends since it is correlated with the ISM survey and the index of industrial production. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behaviour. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation.
Purchasing Managers Index (PMI) - The National Association of Purchasing Managers (NAPM), now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders. It is divided into manufacturing and non-manufacturing sub-indices.
Producer Price Index (PPI) – PPI is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. The PPI measures price changes in the manufacturing sector. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. Inflation at this producer level often gets passed through to the consumer price index (CPI). The relationship between inflation and interest rates is the key to understanding how data like the PPI influence the markets and your investments.
Retail Sales – Retail sales measure the total receipts at stores that sell durable and nondurable goods. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales date can help you spot specific investment opportunities, without having to wait for a company’s quarterly or annual report.
Retail Prices Index (RPI) - The RPI is the UK’s principal measure of consumer price inflation. It is defined as an average measure of change in the prices of goods and services brought for the purpose of consumption by the vast majority of households in the UK. It is complied and published monthly. Once published, it is never revised. RPI includes date on food and drink, tobacco, housing, household goods and services, personal goods and services, transport fares, motoring costs, clothing and leisure goods and services. Measures of inflation are vital tools for economists, business and government. The Bank of England’s Monetary Policy Committee sets UK interest rates on the basis of a target figure for inflation set by Chancellor of the Exchequer. Wage agreements, pensions and change in benefit levels are often linked directly to the RPI. Utility regulators impose restrictions on price movements based on the RPI.
Trade Balance - The balance of trade is a statement of a country’s trade in goods (merchandise) and services. It covers trade in products such as manufactured goods, raw materials and agricultural goods, as well as travel and transportation. The balance of trade is the difference between the value of the goods and services that a country exports and the value of the goods and services that it imports. If a country’s exports exceed its imports, it has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country has a trade deficit and its trade balance is said to be negative.
The balance of trade sometimes refers to trade in goods only. The term should not be confused with the balance of payments, which is a much broader statement of international monetary flows, including not only trade in goods and services, but also investment income flows and transfer payments. A positive or negative balance may simply reflect a change in the relative cost of domestic products compared with international prices. For industries that rely heavily on exports, like the auto sector, a positive balance of trade may reflect a higher international demand, which can mean more jobs in that industry.
Unemployment rate - Percentage of employable people actively seeking work, out of the total number of employable people determined in a monthly survey by the Bureau of Labor Statistics. An unemployment rate of about 4% - 6% is considered “healthy”. Lower rates are seen as inflationary due to the upward pressure on salaries; higher rates threaten a decrease in consumer spending.
