Economic Indicators

by Online Trading Academy

Economic Indicators are valuable and reliable reports that are assembled by the Government, Universities and the private sectors of business. They measure the economic health of our overall economy. Most are monthly reports and some are weekly. Generally, the Market, as a whole, listens very carefully to the results to determine whether they are "net buyers" or "net sellers" for the day. 

Whenever a report is released, you need to be aware of the time and information given. It can dramatically change the price direction, depending on how the Market interprets it. There are many different indicators. Below we have given you a sampling. You must understand that not all indicators are important all of the time, so you must learn them, observe the reactions to them and, then, form an opinion on which ones help you in your specific style of trading. And to make it all more fun, their importance changes with time and the Market's perception.

Consumer Price Index (CPI)
The Consumer Price Index is a measurement of the cost of living determined by the U.S. Bureau of Labor Statistics. The CPI is a widely followed inflation indicator. It is designed to compare relative price changes over time for a fixed basket of goods and services used by consumers. The CPI has the potential of overstating inflation because it does not adjust for substitution of goods and rapidly changing prices of new technology.

Release Schedule: Monthly - around the 13th at 8:30am EST

Producer Price Index (PPI)
The Producer Price Index measures the average change over time of wholesale prices received by domestic producers for their output. This index has several components: commodity, industry sector, and stage of processing. The U.S. Bureau of Labor Statistics produces the PPI.

Release Schedule: Monthly - around the 11th of each month at 8:30 EST

Gross Domestic Product (GDP)
Provides the total value of goods and services produced within the borders of the U.S. Real GDP is the most comprehensive measure of U.S. economic activity. The change in output is measured in real terms (inflation has been removed). Released by the U.S. Department of Commerce, Bureau of Economic Analysis.

Release Schedule: Quarterly, during the 3rd or 4th week of the month following the previous quarter at 8:30am EST.

 M2 - Money Supply
A measure of the United States' supply of money, including M1 (currency in circulation, demand deposits, nonblank traveler's checks, and other checking deposits) plus money market funds, savings accounts, overnight Eurodollars and time deposits under $100,000. Provided by the Board of Governors of the Federal Research System.

Release Schedule: Weekly and Monthly

Employment Report
The Employment Report(s) are the most timely and broad indicator of economic activity. It provides results for two separate reports. A household survey generates an unemployment rate, and a business survey determines non-farm payrolls, average workweek and average hourly earnings figures. Provided by the U.S. Department of Labor, Bureau of Labor Statistics

Release Schedule: First Friday of the month at 8:30am EST.

Institute of Supply Management (ISM)
(formerly National Association of Purchasing Managers (NAPM) report)
Results of a national survey of purchasing managers that includes data on items such as new orders, production, employment, inventories, prices, import orders, and delivery times. A reading above 50% indicates expansion and below 50% contraction. This particular report is now split into 2 sections. The first is for goods and raw materials and the second reports the purchases of services.

Release Schedule: First business day of the month for the prior month at 10:00am EST.

These are a few of the 28 Major economic indicators. There are many more minor ones that maybe industry or sector specific. Understanding that a trader needs to learn to "Trade Down", that is to say, look at the Big Picture and then focus down to your specific stock pick. Economic Indicators have extremely strong influences on the direction of the Market. You should anticipate each announcement before entering a trade.

Most financial websites have Economic Calendars which show all the information you may require. You can certainly find these calendars at Yahoo/Finance.com, CNBC.com, Smartmoney.com, CBSMarketWatch.com and Bloomberg.com to name a few. Remember to calendar your Calendar!

This article was originally published by Online Trading Academy at www.tradingacademy.com and is reprinted here with permission.