The economic indicators are closely observed in the world of investments, its launch can have an immediate and volatile effect in the currency market. There are three main types of indicators; Leader, coincident and lagged. It is believed that the main indicators change before changes in the economy, which may give you an idea of what might happen before it actually occurs.
Coincident indicators reflect changes in the economy almost at the same time they occur. The lagging indicators change after changes in the economy in general and are of little use for prediction. Interest rates are an important driver of currency markets and each economic indicator is closely watched by the Federal Reserve when they decide on their monetary policy. For this reason, many of these indicators can have substantial effects in the Forex market. These events are:
Gross Domestic Product
It is the total monetary value of 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 the production of that product. GDP growth is measured in real terms, that is, increases in production due to inflation have been eliminated. (For more info see GDP valuation).
The main objective of the Federal Reserve is the sustained growth of the economy with full employment and stable prices. Real GDP is the broadest measure of the performance of the US economy. By tracking the evolution of the GDP growth rate, as well as the unemployment rate and the inflation rate, politicians are able to assess whether the current monetary policy is consistent with the objective pursued. There are several ways to measure the Gross Domestic Product although the most used method is the so-called expenditure method
The Gross Domestic Product of the United States is published quarterly by the Office of Economic Analysis (http://www.bea.gov). Normally preliminary data are published the last week of the month following the end of the quarter.
The GDP report is the most important of all the economic indicators. It is the largest measure of the general state of the economy. The GDP number is published at 8:30 a.m. EST on the last day of each quarter and reflects the activity of the previous quarter. GDP is the aggregate monetary value (total) of all goods and services produced by the entire economy during the quarter that is being measured.
The consumer price index (CPI)
It is an indicator that measures the rate at which the prices of consumer goods and services change from one month (or one quarter) to another. A CPI measures the rate of price inflation that households experience and perceive as consumers. CPIs are official statistics usually produced by national statistical offices, labor ministries or central banks. They are published as soon as possible, usually around ten days after the end of the last month or quarter.
It measures the evolution of the cost of the consumer’s basket. In most countries, the consumer price index (CPI) is officially calculated using the Lapsers formula, which compares the value of a basket of consumer goods typical of households, at current prices, with the value of the price. Same basket in a base year. Not considering the substitution effect measures the evolution of the cost of goods and services and not the cost of living
The CPI report is the most used measure of inflation. This report is published at 8:30 a.m. Eastern time, approximately the 15th of each month and reflects the data of the previous month. CPI measures the change in the cost of a package of consumer goods and services from month to month.
The producer price index (PPI)
The United States Producer Price Index, known by the acronym PPI (Producer Price Index) is an economic indicator that measures the average change in prices that domestic producers receive for the sale of their products. It can also be seen as the Production or Production Price Index (in Spanish with the acronym IPP).
This index is constructed taking the average of the sale prices that producers charge to their customers, usually in the wholesale market. Because an increase in producer prices is normally passed on to the final consumer, the PPI has an important role as an early indicator of inflation and as a forecast for the Consumer Price Index. The Producer Price Index report also provides insight into how an increase in the price of raw materials flows through the production chain to the consumer.
An increase in the PPI points to an increase in upward pressure on inflation. High increases in inflation tend to lead Central Banks to an increase in their interest rates, and interest rates affect the exchange rate between currencies (see also Factors that affect the exchange rate between currencies). On the other hand, a continued fall in the PPI indicates prices to the downside, which may be indicative of a slowdown or economic decline.
Together with the CPI, the PPI is one of the two most important measures of inflation. This report is published at 8:30 a.m. Eastern time during the second full week of each month and reflects the data from the previous month. The producer price index evaluates the price of goods at the wholesale level. Then, in contrast to the CPI, the PPI measures the amount that producers receive for the goods, while the CPI measures the cost that consumers pay for the goods
Retail sales index
This index measures total revenues in the retail sales sectors, where durable and non-durable goods are sold in the US. These figures are published in current dollars, which is, not adjusted for inflation. However, if they adjust seasonally and for holidays according to the months of the year.
Importance: Medium. Retail sales are considered the indicator of consumer trends and behaviours, which account for almost half of total consumer spending and approximately one-third of aggregate economic activity. The foregoing gives us an approximation of the trends among different types of retailers and can help identify specific investment opportunities.
The Retail Sales Index measures goods sold within the retail industry, from large chains to smaller local stores, take a sample of a set of retail stores across the country. The retail sales index is published at 8:30 a.m. EST, approximately the 12th of each month; reflects the data of the previous month. This report is often reviewed quite significantly after the final numbers come out.
A monthly index of the manufacturing industry of the United States compiled by the Institute of Supply Management (ISM). Formerly known as the National Purchasing Management Association Index (NAPM), the ISM Manufacturing Index is derived from the Institute’s “Report on Business” survey of procurement and supply executives nationwide.
It is considered one of the most reliable leading indicators available to assess the short-term direction of the United States economy. The farther away the 50% index is, the higher the exchange rate. The report for a specific month is published on the first business day of the following month. It has been published continuously since 1931, except for a four-year hiatus during the Second World War.
The NAPM Index – now known as the ISM Index – is derived from the “Report on Business” survey covering 18 diverse sectors of the US manufacturing economy. It is sent to respondents in the first part of each month, and they are asked to report changes in 10 specific business activities compared to the previous month. These activities are new orders, production, employment, deliveries to suppliers, stocks, customer stocks, prices, order book, exports, and imports.
This report is called an index of the National Purchasing Management Association and measures the conditions in the manufacturing sector. The NAPM index is published on the first business day of the month at 10 a.m. EST and reflects the data of the previous month.
Consumer confidence index
The consumer confidence index is published on the last Tuesday of the month at 10 am EST, the report measures consumer confidence about the state of the economy and its purchasing power. Consumer confidence is considered a crucial part of the economic landscape, the more confidence people have about the stability of their income, and the more likely they are to make purchases.
Durable goods orders
The durable goods orders report provides a measure of the number of people spending on long-term purchases, which are defined as products that are expected to last longer than the years. The report is published at 8:30 a.m. Eastern time, around the 26th of each month and is believed to provide information on the future of the manufacturing industry.
Indicators of employment
The most important job announcement occurs on the first Friday of each month at 8:30 a.m. ITS T. This announcement includes the unemployment rate; which is the percentage of the workforce that is unemployed, the number of jobs created, the average hours worked per week and the average earnings per hour. This report often results in a significant movement of the market.