Economic Data That Influence the Market

In this page, I explain some of the commonly used economic indicators that can influence the general direction of the market. If you are new to investing, these indicators will enhance your knowledge and affect your investments. So the next time you hear these terms in the media or financial press, you can use the information in this article to evaluate their potential effect on the economy and ultimately your trading strategy.

Beige Book

Formally called as “Summary of Commentary on Current Economic Conditions” is published eight times a year less than 2 weeks prior to the FOMC meeting on Wednesdays at 2:00 pm ET. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from banks and branch directors and interviews with key businessmen, economists, and other sources. The Fed uses this report, along with other indicators, to determine interest rate policy at FOMC meetings.

If the Beige Book indicates inflationary pressure, the Fed may raise interest rates. Conversely, if it indicates recessionary conditions, the Fed may lower interest rates.


Chicago Purchasing Managers Index (PMI)

Released on the last business day of the month at 10:00am ET. It’s based on surveys of more than 200 purchasing managers regarding the manufacturing industry in the Chicago area whose distribution of manufacturing firms mirrors the national distribution.

Readings above 50 percent indicate an expanding factory sector, while below 50 indicates contraction.


Consumer Confidence Index

Published on last Tuesday of the month at 10:00 am ET for prior month data. It’s a survey of about 5000 consumers about their attitudes concerning the present situation and expectations regarding economic conditions conducted.

This report can be helpful in determining the shifts in consumption patterns and giving us insights about the direction of the economy. This data can be revised monthly based on a more complete survey.


Consumer Price Index (CPI)

Released around 13th of the month at 8:30am ET for prior month. It 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. Also known as the cost-of-living index.

The variance of CPI called “core CPI” which excludes food and energy prices is primarily used to gauge the underlying inflation trend. Inflationary pressure is generated when the core CPI posts larger-than-expected gains.


Producer Price Index (PPI)

Released around 11th of each month at 8:30am ET for prior month data. The PPI measures the average price of a fixed basket of capital and consumer goods at the wholesale level.

Similar to CPI, there is a variance of PPI, called as “core PPI” which excludes the prices for food and energy to give a clearer picture of the underlying inflation trend. Inflationary pressure is generated when the core PPI posts larger-than-expected gains.


Durable Goods Orders

Officially called as “Advance Report on Durable Goods Manufacturers’ Shipments and Orders”, released around 26th of the month at 8:30am ET.

This is government index that measures the dollar volume of orders, shipments and unfilled orders of durable goods. Durable goods are new or used items with normal life expectancy of 3 years or more.

This report gives information on the strength of demand for US manufactured durable goods in domestic and international markets. When the index is increasing, it indicates demand is growing, which will result in rising production and employment.


Employment Situation

Published on 1st Friday of the month at 8:30am ET for prior month data. This report lists the number of payroll jobs at all non-farm businesses 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 report is the single most closely watched economic statistic as an indicator of economic activity. Therefore, it plays a big role in influencing the market psychology during the month.

Its obvious from the report that the greater the increase in employment, the faster the total economic growth. An increasing unemployment rate is associated with a contracting economy.

If the average earnings are rising sharply, it may be an indication of potential inflation.


Existing Home Sales

Published on the 25th of the month at 10:00am ET for prior month data. This report measures the selling rate of pre-owned houses. Its considered a decent indicator of activity in the housing sector.

This provides a gauge of not only the demand for housing, but the economic momentum. The data is revised monthly for the preceding month. There can be annual revisions for the preceding 3 years.


Gross Domestic Product (GDP)

Released in 4th week of the month at 8:30am ET for prior quarter, with subsequent revisions released in the 2nd and 3rd month of the quarter. GDP measures the dollar value of all goods and services produced within the borders of the United States.

This is the most comprehensive measure of the performance of the US economy. A higher GDP growth leads to accelerating inflation, while the lower growth indicates a weak economy.


Housing Starts and Building Permits

Released around 16th of the month at 8:30am ET for prior month data. It’s a measure of the number of residential units on which construction has begun.

It can be helpful to predict the changes in GDP. While residential investments represents just 4% of the level of GDP, due to its volatility it frequently represents a much higher portion of changes in GDP over relatively short periods of time.


Initial Claims

Published on Thursday at 8:30am for week ended prior Saturday. It’s a government index that tracks the number of people filing first-time claims for state unemployment insurance.

Investors use this indicator’s 4-week moving average to predict trends in the labor market. A move of 30000 or more in claims shows a substantial change in job growth. The lower the number of claims, the stronger the job market and vice-versa.


ISM Manufacturing Index

Released on the 1st business day of the month at 10:00am ET for prior month data. It’s based on surveys of 300 purchasing managers nationwide representing 20 industries regarding manufacturing activities. It covers data such as new orders, production, employment, inventories, delivery times, prices, export orders and import orders.

It’s considered to be a major economic indicator of all manufacturing indices. Readings of 50% or above are typically associated with and expanding manufacturing sector and healthy economy, while below 50 are indications of contraction.


ISM Services Index

Also known as Non-Manufacturing ISM is published on 3rd business day of the month at 10:00am ET for prior month data. This index is based on a survey of about 370 purchasing executives in industries including finance, insurance, real-estate, communications and utilities. It reports on business activity in the service sector.

Readings above 50% indicate expansion in the service sector of the economy. While below 50% indicate contraction.


Retail Sales

Published around 12th of the month at 8:30am ET for the prior month data. This index measures the total sales of goods by all retail establishments in the US. These figures are in current dollars, that is, they are not adjusted for inflation. However, that data are adjusted for seasonal, holiday –differences between the months of the year.

This is considered the most timely indicator of broad consumer spending patterns. It gives a sense of the trends among different types of retailers.