10 most important economic indicators

What are the 10 Most Important Economic Indicators?

What are the 10 Most Important Economic Indicators?

What are economic indicators?

Economic indicators are surveys used by investors and economic analysts to make educated predictions on the future trends of financial markets and the economy.

Economic indicators, for example, CPI (Consumer Price Index), GDP (Gross Domestic Product), and oil inventories, are published by governments and non-profit organizations either every week, month or quarter and help to measure an economy’s health, current business productivity and how consumers are generally investing and spending their money.

Keeping an eye on the economy is crucial but not all financial investors and analysts examine every report, which leads us to the question: what are some of the most important economic indicators out there?

1. US Crude Oil Inventories

Crude Oil Inventories are economic indicators that measure the total supply of crude oil.

Crude oil reserves are used by oil manufacturers and governments to regulate the supply of and demand for crude oil. Crude stockpile quantities are affected by several factors such as OPEC’s (The Organization of the Petroleum Exporting Countries) regulations on production levels, world politics, changes in tariffs and trade wars, and whether the demand for crude oil is greater or less than the supply. Crude oil inventories directly influence the price of crude oil; for example, low supply levels mean higher prices.

The US Crude oil inventory report is released by the US Energy Information Agency (EIA) every week. This information reveals the number of crude stockpiles for use in the commercial markets but ignores the crude inventories of the Strategic Petroleum Reserve (SPR). What is the SPR? The SPR, as the name suggests, is a backup reserve of crude oil should emergencies, such as a war or energy shortages, present themselves.

The International Energy Agency (IEA) circulates a monthly report on the crude oil markets which reveals the figures regarding the oil inventories of the Organization for Economic Co-operation and Development (OECD). The OECD crude oil stockpiles are for commercial use unlike the Global Strategic Petroleum Reserves (GSPR) which are crude oil supplies maintained for possible non-renewable fuel shortages in the future.

Established in 1974, the International Energy Agency (IEA) regulates crude oil inventories. The IEA requires that each member state maintains three months’ worth of crude oil stockpiles.
Crude inventory reports can affect the cost of crude oil and inflation levels. If predicted levels are less than the published figures, then prices may become bullish; whereas if predicted levels are more than the published figures then prices may become bearish.

Recent news on this economic indicator:

Michael Lynch from Forbes.com states:

‘The rate of growth in oil demand for 2019 is expected to be higher, not lower, than in 2018, the U.S. being a notable exception (growing at half the rate of 2018), but oil demand in Europe, whose economy is slowing, is forecast to grow faster than in 2018, while Chinese demand is expected to grow at the same rate as last year, despite signs of economic weakness there.’

See the full article here.

2. Employment Report

The Employment Report is published monthly by the US Bureau for Labor Statistics (BLS) and looks at employment, unemployment figures, and average hours worked. The Employment Report is referred to by various firms, financial analysts, economists, and investors which can have an effect on consumer and business sentiments.

The Employment Report measures the US Non-Farm Payroll employment figures.

The Non-Farm Payroll is an economic term that simply means all jobs other than agriculture, freelance work, and the armed forces. The report sums up the Non-Farm Payroll figures for a month and then compares the findings with data from the past so that analysts can see if employment numbers are increasing or decreasing. Ultimately the Employment Report is important because if unemployment is at a low percentage then it is often an indicator of economic growth.

Recent news on this economic indicator:

Eric Morath, a reporter for The Wall Street Journal states:

‘The U.S. labor market notched its 100th straight month of increased employment in January while sustaining robust wage growth, passing the tests posed by a federal-government shutdown, market volatility and uncertainty about global economies. Nonfarm payrolls rose a seasonally adjusted 304,000 in January, the Labor Department said Friday. The gain was well above last year’s average monthly job growth and showed that most private-sector businesses shrugged off the shutdown and kept on hiring.’

Read the full article here.

3. Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) shows the amount of money that all goods, products, and services make in a given period of time.

GDP is used by the US Federal Reserve System, to regulate base interest rates in order to stabilize and control inflation levels.

But who issues the GDP report? The GDP report is published quarterly by the US Bureau of Economic Analysis. Every report consists of commentary that looks for the cause of the increase or decrease in GDP figures compared to the previous report.

Recent news on this economic indicator:

Alexa Lardieri, the Staff Writer for USNews.com states:

‘The record-long government shutdown, now entering day 32, may cost the government more than the $5.7 billion President Donald Trump is demanding for a border wall.
In an analysis earlier this month, Beth Ann Bovino, the chief U.S. economist for S&P Global, estimated that every week of the shutdown could shave off $1.2 billion from the country’s gross domestic product. Now in its fifth week, the shutdown could potentially cost America $6 billion.’

Read the full article here.

4. Consumer Price Index (CPI)

The Consumer Price Index is a tool used for measuring the inflation levels of an economy. CPI takes the mean of cost differences from a basket of US goods and services.

Since the early 1910s, the US Bureau of Labor Statistics (BLS) has published a monthly CPI report.

CPI is commonly used by analysts to gauge both periods of possible inflation and the success or failure governmental policies regarding the economy. Governments, firms and the general public can use CPI as an indication of how costs within the economy could change. The CPI survey covers pensioners, the employed and unemployed, but it excludes the agricultural industry and the military.

The BLS defines the Consumer Price Index as:

‘The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a monthly measure of the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services. The CPI-W is based on the spending patterns of urban wage earners and clerical workers.’

Click here to see the full BLS publication

Recent news on this economic indicator:

‘U.S. consumer prices fell for the first time in nine months in December amid a plunge in the cost of gasoline, but underlying inflation pressures remained firm as rental housing and healthcare costs rose steadily.’
‘The Labor Department said on Friday its Consumer Price Index dipped 0.1 percent last month, the first drop and weakest reading since March. The CPI was unchanged in November. In the 12 months through December, the CPI rose 1.9 percent after increasing 2.2 percent in November.’
‘Excluding the volatile food and energy components, the CPI increased 0.2 percent, advancing by the same margin for a third straight month. In the 12 months through December, the so-called core CPI rose 2.2 percent, matching November’s increase.’

Taken from CNBC.com. For the full report click here.

5. Interest Rates

As an economic indicator, interest rates can be extremely important for forex markets. A nation’s central bank decides the baseline interest rate. Interest rates are used in order to regulate the pace of economic growth, for example, if inflation is high then interest rates can increase as a countermeasure. On the other hand, if interest rates decrease it can boost economic growth.

How do interest rates regulate the economy?

If a central bank raises the base rate of interest it means that consumers would pay a greater amount of interest. A rise in the base interest rate restricts economic issues such as high inflation because high-interest rates cause debtors to pay more money with every monthly instalment leaving less money to spend on goods and services.

On the contrary, if the growth of an economy is slow and a central bank wants to improve the situation then it can reduce interest rates. This would mean that consumers pay less interest on their loan, leaving them with more money to spend on goods and services which also helps to increase GDP.

How do interest rates affect investors?

  • The higher the interest rate the greater the return for money stored in banks. Investors and shareholders, therefore, are more likely to invest money in banks with higher interest rates.

Can inflation affect interest rates?

  • Inflation checks the rate at which the cost of products and services rise or drop. If the rate of inflation escalates it could indicate that the cost of goods and services are increasing fast.
  • If the rate of inflation drops, the costs of goods and services continue to increase but at a slower pace.
  • If inflation rates are higher than anticipated, investors may predict a rise in interest rates encouraging them to buy shares.

Central banks can have one of two sentiments when it comes to the growth of the economy and inflation rates:

  1. When a central bank aims at regulating inflation, it adopts a hawkish sentiment and increases interest rates.
  2. When a central bank aims at encouraging the growth of an economy, it adopts a dovish sentiment and decreases interest rates.

Recent news on this economic indicator:

Emma Stevenson, an Investment Specialist at Schroders, states:

‘Concern over the outlook for US interest rates was one of the dominant themes of 2018, especially as the year progressed. President Trump got involved in the debate, tweeting in December that it was ‘incredible’ that the US Federal Reserve (Fed) was considering raising interest rates again. Despite the pressure from the president, the Fed did raise rates in December as expected, to a range of 2.25-2.50%.’

‘At the same time, the Fed changed its projections for interest rates in 2019. The US central bank now expects only two further rate rises, whereas previously three more were anticipated. This is due to lower economic forecasts, with the Fed revising its 2019 GDP growth forecast down to 2.3% from 2.5%.’

To read the full article click here.

6. Consumer Sentiment

Consumer sentiment is another economic indicator that measures the economy’s health by surveying public consumer opinion. The Consumer Sentiment Report covers the consumer’s view on key issues such as the financial market and the direction of economic growth.

The Consumer Sentiment Report is published every month by the University of Michigan and aims to:

  • Collect consumer opinion on economic issues such as government spending.
  • Help economists gain knowledge on the overall attitude of the consumer.
  • Match saving and spending practices with consumer sentiment.
  • Predict future economic trends regarding saving and spending.

Recent news on this economic indicator:

Chibuike Oguh, for Bloomberg.com states:

U.S. consumer sentiment fell by less than forecast after the longest government shutdown in American history, suggesting the impact of the closure may be abating.

The University of Michigan’s final January sentiment index fell to a two-year low of 91.2, though that was higher than the forecast in a Bloomberg survey that had called for the reading to be unchanged from the preliminary reading of 90.7. The measure of current conditions was weaker than the initial reading while the expectations gauge strengthened somewhat.

Read the full report here.

7. ZEW Financial Market Survey

What does ZEW stand for?

ZEW (Zentrum für Europäische Wirtschaftsforschung) is German for the Centre for European Economic Research.

Established in the early 1990s, the Financial Markets Survey is published monthly by ZEW and compiles the general attitude of hundreds of economic experts on the topic of Germany’s economy.

Senior Researcher for ZEW, Dr. Michael Schroder defines it as:

‘The ZEW Indicator of Economic Sentiment is calculated from the results of the ZEW Financial Market Survey. It is constructed as the difference between the percentage share of analysts that are optimistic and the share of analysts that are pessimistic for the German economy in six months.’

Read the full article here.

Recent news on this economic indicator:

‘German economic sentiment improved unexpectedly in January, but an index of current conditions tumbled to a four-year low, underlining concerns over the health of the euro zone’s largest economy.’

‘The ZEW Centre for Economic Research said that its index of German economic sentiment rose to -15.0 points this month from a reading of -17.5 in December.’

Taken from investing.com.

8. Existing Home Sales Report

The Existing Home Sales Report circulates at the end of every month and is published by the National Association of Realtors (NAR). The report measures sales figures within the housing market.

The report includes the number of existing properties sold and the average amount they are sold for. The Existing Home Sales Report is a lagging economic indicator because it only responds after changes to economic trends, for example, base interest and mortgage rates, have occurred.

The Existing Home Sales Report is published before sales contracts are finalized. Property sales contracts often include a mortgage which can take months to close. Therefore, the report may not be entirely accurate due to the nature of home sale contracts.

Recent news on this economic indicator:

‘CNBC’s Diana Olick reports on breaking existing home sales numbers that show a sharp decrease, down 6.4 percent versus the expected 1.3 percent.’

Watch the news report here.

9. Retail Sales Report

Each month the US Census Bureau produces the Retail Sales Report. This economic indicator measures the worth of sold retail goods by surveying a cross-section of businesses that market and sell goods to consumers.

The Retail Sales Report is made up of large and small-scale shops as well as online markets. The information collected by the Retail Sales Report is referred to by government departments, investors and economists as it can be crucial in measuring GDP.

The Retail Sales Report findings are used by the US Federal Reserve to evaluate the current purchasing trends of consumers.

Recent news on this economic indicator:

Sam Meredith, the digital reporter for CNBC, states:

‘On the data front, eurozone retail sales fell as expected in December. Official data published Tuesday showed non-food sales and online purchases dragged retail sales down to 1.6 percent month-on-month at the end of 2018, largely in line with an average forecast in a Reuters poll of economists.’

Read the full report here.

10. Productivity and Costs Report

The Productivity and Costs Report evaluates inflation levels. Productivity refers to how economical the US labor force is at generating products and services, whereas costs refers to the price of labor used to create those products and services.

The Bureau of Labor Statistics (BLS) publishes the Productivity and Costs Report once every three months. A greater rate of productivity happens when businesses increase production output without increasing the workforce figures.

Production efficiency encourages higher incomes, decreased levels of inflation and higher revenues.

Recent news on this economic indicator:

Jeff Kearns, the US economy editor at Bloomberg, states:

‘The Labor Department will publish new data on U.S. productivity Wednesday, though the report will lack the main measure because of the government shutdown.

The fourth-quarter productivity and costs release due at 8:30 a.m. in Washington will include manufacturing productivity for the period, though not the headline gauge of nonfarm business productivity or figures on unit labor costs, according to a fact sheet from the department’s Bureau of Labor Statistics.’

Read the full article here.

 

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