Demystifying Economic Indicators

Transcription

1 Demystifying Economic Indicators Jonathan Jackson, CFA Advisor, Catalyst Strategic Solutions 1 Agenda: Discuss the most influential economic indicators. Look at why these economic indicators can move markets and affect monetary policy when their reports are released. Learn where to find details of those reports online. 2 1

2 Economic indicators are the barometers that inform market participants on what the economy is up to and what direction it is likely to go in the future. Economic data is used to confirm what point we are at in the business cycle or predict when we will move to the next stage of the cycle

3 Economic indicators can be split into three categories: Leading Indicators that change before economic conditions change. Coincident Indicators that change as overall economic conditions change. Lagging Indicators that change after economic conditions change. Examples of each include: Leading Coincident Lagging Building Permits CPI GDP Unemployment Claims Retail Sales Unemployment Rate 5 Gross Domestic Product (GDP) is the total market value of all final goods and services produced in a given year. Personal Consumption Expenditures (PCE) is a key GDP input to watch. This is all spending by consumers on goods and services and consumers make up 70%+ of GDP. gdpnewsrelease.htm Components of GDP 71% Consumer Spending 13% Business Spending 19% Government Spending 3% Net Exports 6 3

4 Annual GDP Growth Rates from The Consumer Price Index (CPI) is a measure of inflation that monitors the price level of a fixed basket of goods. The CPI is computed monthly by the Bureau of Labor Statistics who contact 26,000 retail outlets and 4,000 households in 87 urban areas on 80,000 unique items including food, housing, medical care, and transportation among others

5 Annual CPI numbers from The Producer Price Index (PPI) measures the prices of goods at the wholesale level with three sub categories: Crude Intermediate Finished The PPI is computed monthly by the Bureau of Labor Statistics which collects answers to questionnaires requesting prices on 100,000 different items from 30,000 different firms

6 The Employment Situation Report is released the first Friday of every month by the Bureau of Labor Statistics. The report is compiled from two sources: A survey of 60,000 households, and a survey of 440,000 corporate and government work sites. Among the most important statistics from the report include: How many new jobs were created or lost? How long did the average work week last? What were the average hourly and weekly earnings? 11 U 1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force U 2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force U 3 Total unemployed, as a percent of the civilian labor force (official unemployment rate) U 4 Total unemployed, plus discouraged workers, as a percent of the civilian labor force plus discouraged workers U 5 Total Unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force U 6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force U 3, U 5, and U 6 Unemployment Seasonally Adjusted,

7 Civilian Labor Force Participation Rate Seasonally Adjusted, December Percent 13 Every state offers jobless insurance programs. The state agencies provide the Department of Labor the number of first time filers on a weekly basis and these numbers are released each Friday. Recent history has shown that first time claims hit their peak a few months prior to the economy bottoming out and transitions into recovery. arch.asp 14 7

8 The Retail Sales report is released monthly by the Department of Commerce. Roughly 13,000 randomly selected large and small businesses are surveyed to determine the level of goods sold the previous month. Markets highly anticipate this report because it is the first report of the month that provides clues on consumer spending. Some limitations of the report include: revisions are often very high, spending on goods but not services is measured, and the retail sales numbers are reported in nominal dollars only The Conference Board announces the monthly results of the Consumer Confidence Index the last Tuesday of each month. The survey examines how consumers feel about jobs, the economy and spending. The Conference Board sends out 5,000 surveys but only receives 3,000 back on average in time for the report. The survey focuses on household reaction to labormarket conditions. e.cfm 16 8

9 The University of Michigan releases the results of the Survey of Consumer Sentiment on the Second Friday of each month. The Survey of Consumer Sentiment is designed to gauge consumer attitudes on financial and income situations. 500 individuals are surveyed with 60% of the consumers polled being new and 40% being interviewed a second time The ISM report is a national survey of purchasing managers from over 400 companies in 20 industries and covers indicators such as new orders, production, employment, inventories, delivery times, prices, export and import orders. The ISM report is highly anticipated because it is the first piece of data released each month and is the most influential statistic released by the private sector. org/ ISM Sub Indexes 30% New Orders 25% Production 20% Employment 15% Deliveries 10% Inventories 18 9

10 Manufacturing ISM Report On Business January 1999 December The Durable Goods Orders report measures how much people are spending on long term purchases (products expected to last more than three years). The report is based on data from 4,300 manufacturers representing 89 various industries. Economists watch this report closely because it can foreshadow significant changes in economic activity. 3/adv/pdf/durgd.pdf Examples of Durable Goods Farm Machinery Construction Machinery Mining Machinery Industrial Machinery Laundry Equipment Photographic Equipment Generators Computers Computer Storage Devices Communications Equipment Heavy Duty Trucks and Aircraft Railroad Stock Ships Office Furniture Medical Equipment 20 10

11 The difference between long term and short term interest rates, the yield curve, has proven to be a reliable leading indicator for future economic activity

12 The Federal Reserve has a dual mandate from congress to promote maximum employment and stable prices through monetary policy. Monetary Policy Tools: Open Market Operations The Discount Rate Reserve Requirements Quantitative Easing 23 Jonathan Jackson, CFA Advisor jjackson@catalystcorp.org Catalyst Strategic Solutions 24 12