Glossary of "Key" Economic Indicators  (Grouped by Sector)

The Consumer


Unemployment Report

Consists of: Unemployment Rate, Non-Farm Payrolls, Average Hourly Earnings, & Average Weekly Hours.
"Good to Know": The Unemployment Rate survey is conducted among households, where as the job creation data (non-farm payrolls) is gathered through an employer survey. Hint: If you're not actively employed and not yet seeking new employment, you're not counted! Here's an example of what I mean; you may have just been laid off from your current position and received a severance package, however, you're not quite ready to begin looking for another job.
Personal Income & Spending
"Why should we Care?" Increases (or decreases) in income have a direct impact on spending. Consumer spending accounts for nearly 2/3's of overall economic activity in this country.
Retail Sales
"Why should we Care?" The Retail Sales report is a critical gauge of overall Consumer spending; which accounts for nearly 2/3's of all economic activity in this country. This figure represents the monthly increase or decrease in overall retail activity. It not only includes merchandise acquired at any of the vast variety of retail outlets (i.e. Department & Chain stores, etc.), but the figure also includes food sales at Grocery Stores & Restaurants as well. Another point of interest, this report does not care how the purchases were paid for; whether it be "paper" or "plastic." (That differentiation is tabulated in yet another data series.) Due to the potential size ($'s) of each transaction, automobile sales (cars, trucks, SUV's) are broken out (Ex-auto's) from the overall retail sales data. This is generally considered to be the more significant number within the overall report.
Consumer Credit
"Why should we Care?" This figure represents the monthly increase or decrease of new credit issued. This data comes directly from the Federal Reserve's monthly G.19 statistical release on Consumer Credit. It covers most short-term and intermediate-term credit extended to individuals. It does not, however, include any loans secured by real estate; i.e. mortgages or home equity loans / lines of credit. This data also provides economists with a clearer picture of purchasing patterns with regard to the most recent Personal Spending. How was the merchandise paid for; was it acquired with "paper" or added to the "plastic"?
University of Michigan survey on Consumer Sentiment: (Preliminary & Final Reports)
"Good to Know": Economists and market participants alike track consumer sentiment because it often reveals clues on future consumer spending. (Remember, consumer spending accounts for 2/3's of all economic activity in this country.) The preliminary release of the consumer confidence survey is based on telephone interviews with roughly 250 Americans across the country on personal finances, business conditions, and buying conditions. It is revised with a total of 500 interviews at the end of the month.
Conference Board report on Consumer Confidence
"Good to Know": Each month the Conference Board surveys 5,000 consumers across the country on their overall "mood" with regard to current economic conditions, as well as, their outlook for the future. Economists and market participants alike track consumer confidence because it often reveals clues on future consumer spending. Remember, consumer spending accounts for 2/3's of all economic activity in this country. However, the two do not necessarily move in tandem.  (This report is considered to be the "big brother" of the smaller scale, bi-monthly survey by the University Michigan on Consumer Sentiment which polls just 500 consumers each month.)
Inflation

Producer Price Index; "Core" PPI (Ex-Food/Energy)
"Why should we Care?" This report gives us the latest look at inflation on the Producer (or Wholesale) level. The number generally receiving the greater attention is the "core" figure; it excludes the highly volatile components of food & energy. (Of course, one could argue that by excluding these items it's hard to get an "accurate" assessment; certainly none of us in this country eats or drives a vehicle! Okay, I am being a bit sarcastic, but the fact that this data series is broken out this way has always made me chuckle!) In any event, as long as the "core" inflation data remains tame, the Fed will most likely be content to delay any increases in it's short-term benchmark rates over the near term. Additionally, economists look to this report for some insight on the upcoming Consumer Price Index data; usually follows the PPI report within a day or so.
Consumer Price Index; "Core" CPI (Ex-Food/Energy)
"Why should we Care?" This report gives us the latest look at inflation on the Consumer (or Retail) level. As was the case with the PPI data, the number generally receiving the greater attention is the "core" figure; it excludes the highly volatile components of food & energy. (You already know how I feel about this!) The same thinking applies with the CPI data; as long as the "core" inflation data remains tame, the Fed will most likely be content to delay any increases in it's short-term benchmark rates over the near term. The Consumer Price Index data; usually follows the PPI report within a day or so.
Manufacturing
Institute of Supply Management (ISM) Manufacturing Index; ISM Prices Paid (Inflation Component)
"Why should we Care?" This key manufacturing index is a "favorite" economic indicator of the Federal Reserve Open Market Committee (FOMC). A reading above the level of "50.0" is generally viewed to indicate an expanding economy; while a reading below "44.0" is associated with an economy in recession.
Institute of Supply Management (ISM) Non-Manufacturing Index
"Why should we Care?"This is the "sister" report to the ISM Manufacturing Index. Again, this particular economic indicator set is watched very closely by the Federal Reserve. A reading above the level of "50.0" is generally viewed to indicate an expanding economy; while a reading below "44.0" is associated with an economy in recession.
Industrial Production; Capacity Utilization
"Why should we Care?" These two key manufacturing readings help economists gauge overall industrial activity. This sector of the economy has struggled ever since September, 2001. The Fed continues to express a desire for "Business" to play an important role in the overall economic recovery this time around. To this point, most manufacturers remain reluctant to increase production (and bring back workers) until the aforementioned recovery is in "plain view."
Durable Goods Orders; (Less Transportation)
"Good to Know": Durable Goods are traditionally believed to be those items that are expected to last at least three years. The Durable Goods Orders report is considered to be one of the most volatile economic indicators reported each month; generally revised significantly going forward. Additionally, the monthly Durable Goods data is reported two ways; with (and without) Transportation orders. This separation has been made for a couple reasons. First of all, both defense orders and transportation orders tend to fluctuate wildly from month to month due to the fact that aircraft orders are included in both categories. (Aircraft orders are typically placed in quantity, not one at a time.) Secondly, the Transportation category makes up over 30% of the Durable Goods orders component mix. Economists tend to closely monitor non-defense capital goods orders as a leading indicator of capital spending.
Philadelphia Fed Index
"Good to Know": Economists look to this number to gauge overall manufacturing activity across the nation. The Philadelphia Federal Reserve District not only includes the city of Philadelphia, but the metropolitan areas of New York City and Washington, D.C.
Housing
Housing Starts; Building Permits
"Why should we Care?" The housing sector has traditionally played a "key" role in the overall health of the U.S. economy. Economist's watch this data closely; many feel that there are few other single purchases (combined with the "normal" ancillary purchases that usually accompany a move into a new residence) that can impact overall economic activity with such magnitude. Typically, analysts and market participants alike will focus on the "Building Permits" data; the predictor of future starts. The Housing Starts and Building Permits data give us an early "glimpse" of future numbers on new home sales. Both the "Starts" & "Permits" indices are based on "new, privately owned housing units"; including both single-family homes and multi-family dwellings. The data is further broken up into four regions within the United States; Northeast, Midwest, South, & West. Obviously, mortgage rates (and "seasonal" factors) can significantly impact the data. The Federal Home Loan Mortgage Corporation (Freddie Mac) conducts a weekly mortgage rate survey of average mortgage rates (i.e. 30-year, 15-year, & 1-year Adjustable) offered throughout the country. (The Freddie Mac survey of rates does not include any origination fees or discount points.
Existing Home Sales; New Home Sales
"Why should we Care?" The housing sector has traditionally played a "key" role in the overall health of the U.S. economy. Economist's watch this data closely; many feel that there are few other single purchases (combined with the "normal" ancillary purchases that usually accompany a move into a new residence) that can impact overall economic activity with such magnitude. Economic Factoid: Existing home sales account for approximately 85% of the total monthly home sales figures. The home sales figures are typically released within a day (or two) of each other (sometimes on the same day). Analysts and market participants can get an early "glimpse" of what the data may yield by watching the previously released "Housing Starts" & "Building Permits" numbers; generally reported the week prior to the "Home Sales" figures. Both the "New" & "Existing" home sales figures are based on "privately owned residences" that have "closed" a sale during the month. The data is further broken up into four regions within the United States; Northeast, Midwest, South, & West. Obviously, mortgage rates (and "seasonal" factors) can significantly impact the data. The Federal Home Loan Mortgage Corporation (Freddie Mac) conducts a weekly mortgage rate survey of average mortgage rates (i.e. 30-year, 15-year, & 1-year Adjustable) offered throughout the country. (The Freddie Mac survey of rates does not include any origination fees or discount points.)
General Overall Economic Conditions
Index of Leading Economic Indicators (LEI)
"Why should we Care?" This report gives us a reading on future economic conditions (3-6 months forward). The index is comprised of ten (10) components; including employment, manufacturing, housing, money supply, interest rate, and equity indicators. Both economists and market participants alike believe this index tends to move ahead of, and in the same direction as overall economic activity. (For the most part, this index has accumulated a "reasonable" track record of providing accurate forecasts.)
Gross Domestic Product (GDP); GDP Price Deflator (Inflation Component)
"Good to Know": The quarterly GDP figures are actually reported three times; once each month for the preceding calendar quarter via the Advance report, the First Revision, and the Final report. Economists also pay very close attention to the GDP Price Deflator as it is an inflation gauge.
The FED
The Fed's Beige Book report.
"Good to Know": The “Beige Book” (named for it’s cover) is a collection of economic assessments from the 12 Federal Reserve Bank Districts. It is designed to give members of the Federal Open Market Committee (FOMC) an idea of economic developments across the country beyond the normal release of various economic data. Each Federal Reserve Bank is responsible for submitting data from its Fed District. Information is gathered from various sources including key business people, economists, market experts, and others. The report is published approximately eight times a year, generally two weeks prior to an upcoming FOMC meeting. The job of collating and writing the beige book report is randomly rotated among the Fed banks. The identity of the bank is kept confidential until the time of release. The research director of the district bank in charge of compiling the latest edition writes a summary based on the other banks’ reports.
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**FOMC Meeting** (Rate Decision Released at Approximately 1:15PM Topeka Time)
"Why should we Care?" As portfolio managers in the fixed-income market, challenges and uncertainty are all part of everyday life. The one conclusion that we all eventually come to is the realization that "The FED Rules Our World." (Indeed!) About every 6-8 weeks, we all gather 'round our computer screens and market monitors to see just what new challenges we will have to contend with at the conclusion of another Federal Open Market Committee (FOMC) meeting. If one plans to spend any length of time in this profession, learning to decipher "Fedspeak" is essential! If you become proficient, you earn the designation of "Fed Watcher." (Woo-Hoo!) I plan to provide some additional comments in the "Fed Focus" section after I have had a chance to review their "post-meeting" statement.
"Good to Know": The Federal Open Market Committee (FOMC) consists of twelve members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Non-voting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options. The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
**Release of FOMC Meeting Minutes** (Always in arrears; approximately 3 weeks after the most recent FOMC meeting.)(Released at Approximately 1:00PM Topeka Time)
"Good to Know": As the FOMC's "post-meeting" statements become more cryptic, the ability to read through the actual minutes of an FOMC meeting can be beneficial. In late-2004, the Committee unanimously decided to expedite the release of its minutes. Beginning with this December 14th (2004) meeting, the minutes of regularly scheduled meetings will be released three weeks after the date of the policy decision.This was a significant improvement and another "hallmark" of the Greenspan Fed to make the monetary policy committee's moves as "transparent" to the market as possible. This periodic release gives market participants an opportunity to pick up on something they may have otherwise missed.
**Humphrey-Hawkins Testimony**
(Live Testimony: February & July of each year; Generally Starts at Approximately 9:00AM Topeka Time) "Good to Know": As mandated by the Full Employment and Balanced Growth Act of 1978, the chairman of the Federal Reserve is required by law to report to Congress twice each year on the state of the U.S. economy and the Fed’s interest rate policy. Required Testimony must be presented to the Senate Banking Committee in February and to the House Financial Services Committee in July. Traditionally, the Chairman appears before both committees twice a year to give both Senators and Representatives two opportunities to ask questions. (The second appearances are voluntary.) The Fed Chairman also presents the Central Bank’s forecast for economic growth, unemployment, and inflation. (This semi-annual assessment was originated from a 1978 law cosponsored by then Senator Hubert Humphrey and then Representative Augustus Hawkins; thus the Humphrey-Hawkins Testimony. That law also required the Fed to meet a dual mandate of maximum sustained employment and price stability when setting monetary policy. Although the reporting requirement expired in 2000, the Fed’s mandate remains.)
Quarterly Releases
Employment Cost Index (ECI)
"Good to Know": The Employment Cost Index (ECI) is a key “inflation gauge” that is released quarterly. Compensation makes up approximately 75% of the total ECI, while Benefits complete the remaining 25%. The ECI is a measure of the change (in cost) of labor; free from the influence of employment shifts among occupations and industries. The compensation component includes changes in wages and salaries and employer costs for employee benefits. The benefits component includes paid time off, insurance, and retirement benefits. The Fed pays close attention to this index; particularly as these costs rise.
Non-Farm Productivity; Unit Labor Costs
"Good to Know": Non-Farm Productivity and Unit Labor Costs are considered to be key “inflation gauges” that are released quarterly. Productivity is the measurement that relates to the labor resources expended in overall production. It is further defined as a measure of the efficiency with which labor is being utilized in the production process. This measure of efficiency reflects not only improvements in technological change, but also the impact of substituting other inputs such as capital and intermediate purchases for labor in the production process. Unit Labor Costs represent the overall “price paid” (by the company) for the labor used in production. The Fed pays close attention to both of these economic indicators, particularly as they rise.