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Fundamental Indicators


Below is a list and discription of major economic reports. 


Consumer Price Index

A measure of the average price level of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. The consumer price index is the most widely followed indicator of inflation in the United States. Just knowing what inflation is and how it influences the markets can put an investor ahead of the game. 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. Higher energy prices, manufacturing cost increases, medical costs, imbalances in global supply and demand of raw materials and food products all weigh on this report. For example the price of gasoline we pay at the pumps.

If gas prices escalate to the point where it cost one 30 dollars per week to fill up a car or even to 50 or 60 dollars, you will have less spending money on other items. It may not affect you immediately but a longer duration will hit your pocketbook. Even weather can be a factor on short-term changes on food.

What would the cost of tomatoes at the grocery store after a damaging freeze in California or down south in Georgia be, 3.00 or 4.00 per pound? It has occurred, right. Think of the restaurants that serve salads that lose revenue let alone the farmer whose crop is destroyed. This all plays a part in the CPI number. The core rate is the inflation number that excludes the volatile Food and Energy components. Economists track and watch these numbers; you should too.

Durable Goods Orders

Reflect new orders placed with domestic manufacturers for immediate and future delivery of factory made products. 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 washers, dryers and cars. It also takes the temperature of the strength of the economy going forward.

Gross Domestic Product

(GDP) is the broadest measure of aggregate economic activity and accounts for almost every sector of the economy. GDP is the broadest measure of economic activity. Analysts use this figure to track the economy's performance because it usually indicates how strong or weak the economy is and that helps predict the potential profit margin for companies. It also helps analysts gauge to see if the economy is accelerating or slowing down. The stock market likes to see strong economic growth because that translates to higher corporate profits.

Housing Starts

Measures the number of residential units which construction is about to start on. The backbone of the American Economy is based on construction. Think about this when one purchases a new home, durable good items like refrigerators, washers and dryers, furniture, and lawn care products may be purchased, right? This is known as a ripple effect throughout the economy. Think of all the jobs produced from construction to factory and transportation and even communication and technology that go into the building and financing and furnishing a new home. The economic commerce is substantial. Especially when there are a hundred thousand or more homes built in a month around the country. At the very least the data from housing starts can help project the price direction for the sector of stocks in homebuilders, mortgage banks, and appliance companies. It used to be that lumber and copper futures prices were dramatically affected by the Housing Starts figure. However, since the development of pre-fab and new construction materials especially fiber optics and plastics (PVC is used for plumbing rather than copper) these products are now less sensitive to the building industries trends.

Industrial Production and Capacity Utilization Rate

a measure of the physical output of the nation's factories, mines and utilities. The capacity utilization rate reflects the usage of available resources.

Industrial production shows how much factories, mines and utilities are producing. Since the manufacturing sector is estimated to account for one-quarter of the economy, this report can sometimes have a big impact on the stock and financial markets movement.

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 pressures.

International Trade

Measures the difference between imports and exports of both goods and services. Changes in the level of imports and exports are an important tool that is used to gauge of economic trends both here and overseas. This report can have a profound effect on the value of the dollar. That in turn can help or hurt multi national corporations whose profits overseas can diminish when they convert their funds back to the US especially if the US dollar is overvalued.

Another valuable aspect of this report is that imports can help indicate demand for foreign goods here in the U.S., and exports may show the demand for U.S. goods in overseas countries.

I INDEX (Formerly the NAPM Survey)

The Institute of Supply Management Index otherwise known as the National Association of Purchasing Managers survey is a composite diffusion index of national manufacturing conditions. Readings above 50% indicate an expanding factory sector. The I Index (NAPM) helps economists and analysts get a detailed look at the manufacturing sector of the economy. Since this is a major source of strength for the economy and that can reflect the nation's employment condition this report is a very important to watch.

Consumer Confidence

This is a survey or a poll of consumer's opinions regarding both their present conditions as well as their expectations regarding their economic conditions. Five thousand consumers across the country are surveyed each month. The theory here is the level of consumer confidence is directly related to the strength of consumer spending. Consumer spending accounts for two-thirds of the economy. If consumers are confident that times are good, spending is likely to remain stable or even increase. If consumer confidence is weak, then more times than not consumers save and do not spend money. This shift in spending habits can help or hurt the developments in the economy from durable goods sales to home or car purchases. If consumers are not confident then they are less likely to purchase those big ticket items like a new home or that new car.

Employment Situation

The unemployment rate measures the number of unemployed as a percentage of the nation's work force. Non-farm payroll employment tallies the number of paid employees working part-time and or full-time in the nation's business and government sectors. There are several components that are also included in this report one is the average hourly workweek.

That figure reflects the number of hours worked in the non-farm sector. Another component is the average hourly earnings. It shows what the hourly rate employees are receiving. There are two versions of this report one is a weekly report that is released every Thursday morning and the other is the more influential report which is the monthly figure that is usually released on the First Friday of every month.

Personal Income & Spending:

Personal income is the estimated dollar amount of income received by Americans. Personal spending is the estimated dollar amount that consumer use for purchases of durable and non-durable goods and services.

This economic number is important because if consumers are spending more than they make eventually the spending will stop thus causing a downturn in the economy. Another aspect to consider is consumer who save maybe investing in the markets and that can increase the value of stock prices. In addition it can also add liquidity to the banking system if the money goes to savings or money market accounts.

Producer Price Index (PPI)

A measure of the average prices for a fixed basket of capital and consumer goods paid by producers. The PPI measures price changes in the manufacturing sector. Inflation is a general increase in the prices of goods and services.

Retail Sales

Measures the total sales at stores that sell durable and non-durable goods. This can reveal the spending habits of consumers and the trend of those spending "sprees" can more often than not influence analysts' expectations for future developments to the economy.

Factory Orders

The dollar level of new orders for manufacturing durable and non-durable goods. The data from this report shows the potential that factories will be increasing or decreasing activity based on the amount of orders they receive. This report provides insight to the demand for not only hard goods such as refrigerators and cars, but non-durables items such as cigarettes and apparel.

Employment Cost Index

A measure of total employee compensation costs, including wages and salaries as well as benefits. The employment cost index (ECI) is the broadest measure of labor costs. The employment cost index helps analysts determine the trend of the direction of the cost for employers from having employees.

This can give economists a clue whether inflation is perking up from a cost of doing business standpoint. If a company needs to pay more to hire qualified workers than the cost of doing business increases. This reduces profit margins companies usually raise their prices to consumers if their costs increase and that is where the inflation theme plays out.

Beige Book

A combination of economic conditions from each of the 12 Federal Reserve regional districts. Truthfully, the report is aptly named the Beige Book due to the color of its cover. This report is released usually two weeks before the monetary policy meetings of the Federal Open Market Committee (FOMC) meetings.

This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are where the Fed usually sets interest rate changes.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity.

Productivity and Costs

Productivity measures the growth of labor efficiency in producing the economy's goods and services. Unit labor costs reflect the labor costs of producing each unit of output. Both are followed as indicators of future inflationary trends. Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences.

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 pretty 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. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, new home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Existing Home Sales

The number of previously constructed homes with a closed sale during the month. Existing homes (also known as home resales) are a larger 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 for their own financial situation to buy a house. Analysts follow economic data such as home resales because it generates a tremendous economic ripple effect. Think about it new home buyers may purchase new refrigerators, washers, dryers and furniture.

Mortgage Bankers Association Purchase Applications Index

This is a weekly index of purchase applications at mortgage lenders. This is a good leading indicator for single family home sales and housing construction.

This provides a gauge of not only the demand for housing, but economic momentum. 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.

Construction Spending

This report shows analysts the amount of new construction activity on residential and non-residential building jobs. Commodity prices such as lumber are sensitive to housing industry trends. In addition, business owners usually will put money into the construction of a new facility or factory if they feel confident that business is good enough to validate an expansion.

Index of Leading Indicators

This report is a composite index of ten economic indicators that typically lead overall economic activity. The index of Leading Indicators helps to predict the health of the economy, such as recessions and economic expansions.

Consumer Credit

This report measures consumer credit that is outstanding. Since one of American consumers favorite past times is to "Charge" goods and services to their credit cards the overall changes in consumer credit can indicate the condition of individual consumer finances. Economic activity is stimulated when consumers borrow within their means to buy cars and other major purchases. On the other hand, if consumers pile up too much debt relative to their income levels, they may have to stop spending on new goods and services just to pay off old debts. That could put a big dent in future economic growth.

The demand for credit can also have a direct effect on interest rates. If the demand to borrow money exceeds the supply of willing lenders, interest rates rise. If credit demand falls and many willing lenders are fighting for customers, they may offer lower interest rates to attract business.

Business Inventories

Alan Greenspan watched this report you should become familiar with it as well. This report shows the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator for the future direction of factory production.

Consumer Confidence

There are several such surveys' that gauge consumer attitudes. The conference Board is one and another is the University of Michigan. These reports reveal both the present situation as well as expectations regarding economic conditions. The level of consumer confidence is generally assumed to be directly related to the strength or weakness for consumer spending. Generally speaking, the more confident consumers are about their own personal finances, the more likely they are to spend. Think of how you yourself act and feel as a "consumer". If you have money in the bank and feel confident that your job is secure buying an extra gadget or splurging on a night out usually won't be a trouble, right? On the other hand if times are tough then the purse strings get pulled in, correct?

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