Understanding the Main US Economic Indicators - 24/2/2021

Understanding the Main US Economic Indicators

By Mateo Jarrin Cuvi

Whether we like it or not, the US’s financial wellbeing dictates the overall performance of the global economy.

US economic indicators such as retail sales, industrial production, employment, GDP, inflation, consumer behavior and product prices, among a host of others, can have a powerful impact on the world’s economy.

Case in point, as these financial figures fluctuate, so does the Forex market.

This is particularly true when talking about the dollar-backed major currency pairs, which, remember, account for the majority of trades taking place in our industry.

And this influence is not just limited to America’s economic success or stagnation.

Political, social and cultural events such as Melania Trump slapping away her husband’s touchy-feely hand to the joy of GIF makers across the globe can also send markets into a frenzy.

Joking aside, as a way of introducing you to some of these major economic indicators, here they are categorized by the level of impact they have on the US economy and, consequently, the Forex market.

Please keep in mind that this list is not exhaustive; there are plenty of other indicators left for you to learn about, follow and act upon to maximize your profits.

High Impact Economic Indicators

Retail Sales

This indicator, which is released approximately two weeks into the new month, looks at the total amount of retail sales (in dollars) in the preceding month. This figure does not include automobile sales, which have been deemed to be too volatile and could negatively influence the actual trend in consumer spending.

Obviously, the higher the number or value of retail sales, the better off the economy will be. When consumers are flush with cash like Scrooge McDuck, they spend and then spend some more.

By way of example, the US wrapped up 2020 in a mini slump with retail sales failing to grow for the third consecutive month as a result of the COVID-19 pandemic, higher unemployment and the many lockdowns announced across the country.

However, retail sales kicked off 2021 in stellar fashion, growing by 5.3% in the month of January following President Biden’s stimulus package, which included $600 checks for consumers.

Advance Gross Domestic Product (GDP)

Gross domestic product (GDP) is the main economic indicator for any economy as it defines the total value of goods and services produced within a country during a predefined time frame.

The advanced GDP stat, which is released on a quarterly basis by the US Bureau of Economic Analysis (BEA), is the first of its kind to be made public. Hence, it packs the biggest punch when it comes to influencing the currency market. This specific BEA figure covers the “annualized change in the inflation-adjusted value of all goods and services produced by the economy.”

Non-Farm Payrolls (NFP)

This indicator essentially measures the number of people employed in all industries except for the farming sector, which is excluded as a result of its seasonality. It tracks how employment and therein job creation shifts from month to month, a solid sign of how well the US economy is performing.

Furthermore, the indicators Average Hourly Earnings and Unemployment Rate are also released on the same day as the NFP. The first tracks the salaries businesses are paying employees for their work and how much this figure has changed from month to month, while the second looks at the monthly shift in the number of unemployed people.

Generally speaking, the lower the unemployment rate, the more robust the economy. If people are at work making a salary and producing for the country, they don’t have any time to twiddle their thumbs on the couch, counting cents and fantasizing of better days.

The NFP (and its sidekicks) are released on a monthly basis, generally on the first Friday of each month

FOMC Statement

Any statement by the Federal Open Market Committee (FOMC), the group in charge of monitoring the US’s open market operations, should make your ears perk up like a puppy’s being offered treats.

This committee, which releases its say on the US economy eight times per year, makes all decisions related to interest rates and monetary policy in the country. During its announcements, it also covers the nation’s economic forecast, which is likely to drive markets to move precipitously.

Keep in mind that this statement, which is presented during a press conference, is followed by a Q&A session that lends itself to off-the-cuff answers that could potentially lead to plenty of volatility and more opportunities for experienced traders.

The Institute for Supply Management’s (ISM) Manufacturing and Services Purchasing Manager’s Index (PMI)

Released on the first business day following the end of the month, the PMI is one of the main indicators on the overall health of the US’s economy.

This statistic compiles information provided by 300 purchasing managers on their businesses including details on employment, production, new orders, prices, supplier deliveries and inventories, among others.

So, for instance, unlike retail sales during the tailend of 2020, the PMI showed an expansion of the economy during the latter half of the year with December 2020’s figure reaching 60.7% as demand, production and employment showed improvements from earlier in the year.

Medium Impact Economic Indicators

Consumer Price Index (CPI)

As its name suggests, the CPI keeps track of the price of goods and services purchased by consumers during a specific month and how they have progressed.

More specifically, according to the US Bureau of Labor Statistics, the CPIs “are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living,” with data being “collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments (department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments).”

There are two CPI indicators to keep track of: the regular CPI and the Core CPI, which excludes both the food and energy industries. Why is that? Even though food and energy make up about 25 percent of consumer spending in the US, prices for products in these sectors can be quite volatile and therefore throw a wrench into the trend’s overall pattern.

Another thing to consider is that owners’ equivalent rent (OER), or “how much money a property owner would have to pay in rent to be equivalent to their cost of ownership” as defined by Investopedia, takes up 35% of CPI and 30% of core CPI, which makes rental price changes quite important when it comes to gauging inflation levels.

Hence, this indicator is quite valuable when it comes to keeping tabs on the country’s inflation and potential policies to be pushed forward by the Federal Reserve, although the Fed prefers using the Personal Consumption Expenditures (PCE) price index for inflation.

The CPI is generally released during the second week of each month.

Philly Fed Manufacturing Index

Issued on the third Thursday of every month, this index surveys 250 manufacturers in Philadelphia about their current economic conditions, looking specifically at “the direction of change in overall business activity and in the various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, delivery times, prices paid, and prices received.”

The Conference Board Consumer Confidence

This index, which comes out on the last Tuesday of every month, measures consumer sentiment towards the US economy.

As explained by The Conference Board, this figure “details consumer attitude, buying intentions, vacation plans and consumer expectation for inflation, stock prices and interest rates,” providing traders with a solid overview of the state of consumer spending and the economy’s overall health.

Core and Durable Goods Orders

Released the last week of each month by the US Census Bureau, this indicator tracks new purchases of durable goods placed with manufacturers during a particular month, statistics that do a good job reflecting production levels in the US.

Generally speaking, durable goods are ones that have a shelf life longer than three years and include products such as televisions, computers, oil rigs, washing machines, toaster ovens, dentist chairs and other oh-so-fun items.

As is the case with the CPI and the food and energy industries, the Core Durable Goods Orders excludes the transportation sector since demand for airplanes can be a bit turbulent and distort the end results.

Unemployment Claims

Released on a weekly basis, this statistic lets you know how many people are first-time applicants for unemployment insurance during any given week.

This indicator has been closely tracked during the pandemic since unemployment is on the rise, placing additional stress on the markets.

According to ING’s James Knightley, the job market in the US will continue to struggle “until Covid containment measures are relaxed and businesses have the confidence to hire,” so this might be a good statistic to follow semi-regularly as a prognosticator of the US economy’s progress in times of coronavirus.

Pending Home Sales

Issued by the National Association of Realtors at the end of each month, this figure monitors housing contract activity, looking specifically at “signed real estate contracts for existing single-family homes, condos, and co-ops.”

In the US, homes that are sold go under contract for one or two months before the sale is completed. Hence, this indicator provides a preview of sorts to final house sales in the US.

House sales provide valuable information on the health of the economy because, as explained by Forex Factory, each sale “triggers a wide-reaching ripple effect…renovations are done by the new owners, a mortgage is sold by the financing bank, and brokers are paid to execute the transaction.”

This is, without a doubt, one of the best leading indicators of the housing sector, which, in turn, constitutes anywhere between 15 and 18% of GDP along with its related industries and services.

Low Impact Economic Indicators

Crude Oil Inventories and Natural Gas Storage

On a weekly basis, the US’s Energy Information Agency releases information on the amount of crude oil being held in the country’s reserves. Inventory levels in the US can have an effect on the price of petroleum products and therefore inflation.

This indicator can also offer traders with opportunities to trade crude oil and other related commodities.

As explained by Investopedia, “when oil inventories go up, traders may question the demand for oil at the current price and immediately sell their positions, causing a price retreat.”

On the other hand, when the opposite occurs and inventories dwindle, traders might opt to buy and drive prices upwards since there is seemingly a hike in the demand for oil.

Similarly, the natural gas storage indicator, which again is issued on a weekly basis, keeps track of the amount of natural gas that is in storage in the US.

Import Prices

Two weeks following the end of the month, the US Bureau of Labor Statistics releases information on the price of imported goods bought locally. This indicator is particularly followed because any price hike in imported goods may reflect inflationary pressures on the economy.

Industrial Production & Capacity Utilization

Last but not least, this indicator, which is released by the Federal Reserve two weeks into each month, takes a look at manufacturing, mining and utilities and their real output on a monthly basis. It also covers the total production capacity of each sector and how much is effectively being put into use.

Are there any other economic indicators you keep track of? If so, let us know and we can discuss these in a future blog post!

For now, take out your economic calendars and highlight those indicators you’d like to follow. When the time comes, deposit $100 into your FXPRIMUS account and put your new knowledge on the US economy to work.

To check out a list of all of our ongoing promotions and offers, have a look at our website here.

*Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information.

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