Economic Indicators For Dummies

Michael Griffis, MBA, has been an active trader for more than two decades. He has written about stock trading for online audiences, and today writes about investing and marketing for clients in the banking and brokerage industries.

• Introduction 1About This Book 1Conventions Used in This Book 2Foolish Assumptions 3What Not to Read 4How the Book Is Organized 4Part I: Figuring Out the Economy 4Part II: Making Money, Spending Money: Employment and Consumer Indicators 4Part III: The Essence of Business: Product and Service Indicators 5Part IV: Inflation, Productivity, Interest Rates, and Commodities: Oh My! 5Part V: International Intrigue: Indicators beyond the United States 5Part VI: The Part of Tens 6Icons Used in This Book 6Where to Go from Here 6Part I: Figuring Out the Economy 7Chapter 1: Introducing Economic Indicators 9Understanding What Economic Indicators Are 10Reading the economy through economic indicators 10Cycling through economic ups and downs 11Identifying What Indicators Indicate 12Tracking consumer spending 12Looking at the big picture 13Eyeing manufacturing 14Counting up the number of bought, sold, and newly built homes 15Monitoring inflation 15Measuring productivity 16Looking at loans and commodity purchases 16Following worldwide economies 17Knowing How to Start Following Economic Indicators 18Analyzing the data 19Tracking economic indicator release dates 19Chapter 2: Explaining Economic Jargon 21Identifying Types of Economic Indicators 21Summarizing economic results 22Surveying for information 22Indexing the economy 24Understanding How Economists Analyze the Data 27Measuring growth 27Annualizing reported data 29Smoothing data with moving averages 32Massaging Economic Data to Make the Results More Useful 35Adjusting for inflation 35Adjusting for seasonal fluctuations 37Considering the Timeliness of Economic Indicators 37Leading indicators make forecasts 38Coincident indicators are no coincidence 38Lagging indicators can’t foretell the future 39Looking into the Future with Consensus Forecasts 39Finding consensus forecasts 40Analyzing the accuracy of the consensus 40Amending and Modifying Data with Revision Reports 41Revising previous reports 41Changing benchmarks 42Cha-Ching: Money, Interest Rates, and the Economy 43Understanding the Fed’s monetary measures 43Setting short- and long-term interest rates 44Chapter 3: Understanding the Big Picture: The Economy and Its Footprints 45Taking a Closer Look at the Business Cycle 46Identifying the phases of the cycle 46Growing into expansion 49Slowing into recession 49Reviewing the Key Financial Markets 50Investing in stocks 50Holding bonds 53Trading commodities 55Tracking currencies 56Figuring Out What’s What in Economic Reports 57Finding what’s important in each report 58Seeing how reports are assembled 59Showing Economic Fashions without the Runway 59Understanding market sensitivity 60Determining an indicator’s accuracy and timeliness 61Seeing who’s interested in what 61Part II: Making Money, Spending Money: Employment and Consumer Indicators 65Chapter 4: Counting Jobs and Unemployment 67Tracking the BLS Employment Situation Report 68Counting workers and the unemployed 68Highlighting key parts of the jobs report 73Deciphering employment numbers 75Predicting market reactions due to employment changes 77Looking at Unemployment Insurance Claims 79Keeping track of unemployment insurance claims 80Smoothing jobless claim fluctuations 81Analyzing the claims numbers 82Determining how the market may react to increased claims 82Eyeing the ADP National Employment Report ® 84Reviewing key parts of ADP’s jobs report 85Comparing the ADP and BLS reports 86Figuring out how the market will react to the ADP report 87Advertising for Jobs: The Conference Board Help Wanted Online Index 88Measuring the availability of jobs online 88Predicting how the market will react 89Collecting the BLS Mass Layoff Statistics Report 90Surfing Monster Employment Indexes 91Chapter 5: Survey Says: Considering Consumer Sentiment, Confidence, and Comfort 93Trying to Figure Out Consumers 94Surveying UM’s Consumer Sentiment Index 95Eyeing the importance of this index 95Considering the consumer’s expectations 96Correlating consumer sentiment and spending: What the data mean 97Looking for unexpected changes 99Knowing how the markets will react 100Understanding the Consumer Confidence Index 100Seeing how people feel about the economy 101Looking for happy consumers 103Comparing and contrasting surveys 103Finding surprises in the confidence survey 106Adjusting your portfolio strategy 107Reviewing the Bloomberg Consumer Comfort Index 108Justifying another consumer survey: What makes this one unique 109Correlating comfort, recovery, and recession 109Modifying your portfolio strategy 112Chapter 6: Spreading the Wealth: Consumer Spending and the Economy 113Making and Spending: The BEA’s Personal Income and Outlays Report 113Tracking personal wages, savings, and purchases 115Highlighting consumers’ economic impact: The wealth effect 122Identifying the relationship between spending, income, and the economy 122Reacting to surprising results 123Surveying Retail Sales: The Census Bureau’s Retail Trade Report 124Highlighting product purchases 125Monitoring spending trends 126Investing based on the survey results 127How Much Consumers Borrow: The Consumer Credit Outstanding Report 128Tracking Online Sales: The Quarterly Retail E-Commerce Sales Report 130Part III: The Essence of Business: Product and Service Indicators 133Chapter 7: GDP: The Whole Enchilada 135Grasping What the GDP Report Is 135Breaking down the GDP schedule 136Finding the economy’s growth rate 137Counting products and services in the GDP 140Highlighting the GDP’s Importance 142Declaring recessions and recoveries 143Surveying how businesses use the GDP 144Understanding how the government uses the GDP 144Eyeing how investors use the GDP 145Knowing How the GDP Is Calculated 147Measuring personal consumption 149Tracking private investments 150Counting government consumption 152Monitoring imports and exports 152Purchasing and selling domestic products 153Seeing How GDP Is Adjusted for Inflation 154Chaining dollars to inflation 155Comparing GDP price indexes over time 156Chapter 8: Following the Fed 161Understanding the Fed’s Role 161Outlining the Fed’s basic structure 162Understanding central banking 163Digging into monetary policy 164Reading the Fed’s FOMC Statement 166Eyeing why this report is important 167Forecasting the future with the FOMC 167Reacting to the FOMC Statement 168Boring into the Beige Book 170Monitoring Manufacturing with the Industrial Production and Capacity Utilization Report 171Seeing what the report measures 172Correlating output, capacity, and growth 174Repositioning your portfolio 176Reviewing Regional Fed Reports 179Surveying business outlook 180Indexing national activity 181Chapter 9: Profiling Manufacturing: New Orders and Shipments 185Filling Orders for Durable Goods: The Advance Report on Durable Goods 185Knowing where the data come from 186Tracking new factory orders: Why these stats are important 187Figuring out what the data mean 188Correlating manufacturing and future growth 191Manufacturing your portfolio response 193Monitoring Factory Orders and Sales: The Factory Orders Report 195Comparing the full and advance versions 196Investing in the full report 197Counting Business Inventories: The Manufacturing and Trade Inventories and Sales Report 198Chapter 10: Grappling with Economic Indexes 201Measuring ISM’s Manufacturing Survey 201Understanding how the ISM surveys purchasing agents 202Checking the health of manufacturers 203Surveying purchasing managers’ insights for the PMI 206Monitoring market movement 206Gauging Non-Manufacturing Companies 208Looking At the Leading Economic Index 210Chapter 11: Spending on Housing and Residential Construction 213Growing the Economy One House at a Time 214Realizing the relationship between housing and GDP 214Understanding U.S housing demand 216Counting One Start at a Time: The New Residential Construction Report 217Eyeing the data: Where the stats come from 217Monitoring building permits and other housing stats 219Correlating housing and economic activity 221Remodeling your investment portfolio 222Reporting New-Home Sales: The New Residential Sales Report 223Comparing new starts with new sales: Is it possible? 224Recognizing the connection between new-home sales and the economic cycle 226Forecasting investment market reactions 226Reporting Existing-Home Sales 227Tracking housing prices 229Understanding how existing-home sales affect investment markets 230Monitoring Pending Home Sales 231Surveying Mortgages 233Eyeing what data you get at no cost 234Tracking delinquent mortgages 234Identifying potential market changes 235Pricing the S&P/Case-Shiller Indices 236Part IV: Inflation, Productivity, Interest Rates, and Commodities: Oh My! 239Chapter 12: Determining Inflation’s Economic Impact 241Gauging Inflation from the Consumer’s View: The Consumer Price Index 242Eyeing the parts of the CPI 242In a basket: How CPI is measured 244Understanding why inflation matters 247Seeing the different reactions to inflation and the CPI 248Inflating investment returns 251Using Manufacturing Costs to Measure Inflation: The Producer Price Index 252Comparing the PPI and CPI 253Inflating the price of business supplies 254Correlating the PPI and economic growth 255Showing PPI’s investment market impact 256Tracking Inflation through Labor Costs: The Employment Cost Index 258Monitoring and tracking labor costs 258Seeing how the Fed uses the ECI 259Employing labor costs in investment analysis 260Chapter 13: Taking a Closer Look at Productivity and Economic Growth 261Measuring Productivity and Costs: The Labor Productivity and Costs Report 262Defining productivity 263Correlating productivity to job growth and costs 266Producing investment returns 267Watching Employee Compensation Costs: The ECEC Report 268Monitoring labor costs 270Using labor costs to improve investments 270Calculating What Workers Really Make: The Real Earnings Report 272Chapter 14: Eyeing Business and Municipal Borrowing in the Bond Market 273Simplifying the Fixed-Income Market 274Showing Some Interest in Interest 275Grasping how interest rates are set 275Determining risk 276Finding Current Interest Rates: The Selected Interest Rates Report 277Taming the TIPS (Treasury Inflation-Protected Securities) Spread 281Following the Treasury Yield Curve 282Interpreting the yield curve 282Identifying how the curve can look and what the shapes mean 283Seeing the Bond Market’s Impact on the Rest of the Market 286Yielding interesting returns 286Investing in yield 286Forecasting the currency’s value 287Chapter 15: Harvesting Commodity Data 289Understanding Commodities: Focusing on Supply and Demand 290Paying cash upfront: Cash markets 290Specifying the purchase terms before you buy: Forward contracts 291Bidding for a price: Futures markets 292Delving into Commodities Reports 293Digging for gold and other precious metals 293Drilling into the energy markets 295Growing the agricultural markets 299Mining industrial metals 301Pricing Commodities 302Finding spot prices 302Finding futures prices 303Tracking Commodity Indexes 304Following Standard & Poor’s GSCI 304Digging into the Thomson Reuters/Jefferies CRB Index 306Reading The Economist’s commodity index 307Surveying the Dow Jones-UBS Commodity Indexes 308Part V: International Intrigue: Indicators beyond the United States 309Chapter 16: Trading with the United States 311Tracking Trade: U.S International Trade in Goods and Service Report 312Reporting U.S exports and imports 313Finding more trade data in the supplemental tables and online 321Correlating trade and economic growth 321Trading information for investment returns 322Figuring Out the Balance of Trade 323Following the TIC (Treasury International Capital) System 323Chapter 17: Following Economies Worldwide 325Investing in Overseas Markets 325Using Reliable Sources to Find Info on International Indicators 328Surveying purchasing managers globally 329Surveying purchasing managers in Europe 329Tracking the German Economy 330Measuring German productivity 331Surveying German businesses 334Tracking the Japanese Economy 336Surveying Japanese businesses 336Measuring Japan’s productivity 340Tracking China’s Economy 341Chapter 18: Monitoring Emerging Economies 345Following Emerging Markets 345Seeing the world through Google’s Public Data Explorer 346Using other sources to track emerging markets 347Monitoring India’s Economy 347Following India’s economic progress 348Anticipating India’s future growth 349Following Brazil’s Economic Future 350Summarizing Brazil’s economy 350Understanding Brazil’s inflation issue 352Part VI: The Part of Tens 353Chapter 19: Ten Ways to Track the U.S. Economy 355Monitoring Jobs and Employment Data 356Accounting for Consumer Spending 357Checking Up on Businesses 357Showing an Interest in Interest Rates 358Building on Housing and Construction 358Following Inflation 359Surveying Consumers 360Following the GDP 360Chapter 20: Ten (Or So) Money-Making Tips You Can Use with Economic Indicators 361Finding the Big Picture: Distinguishing between Bull and Bear Markets 361Tracking Sector Rotation 363Following the Herd 364Taking Three Steps, Then a Stumble 364Balancing Your Portfolio 364Investing Strategically 365Taking Your Investments Abroad 365Avoiding Big Investment Mistakes 366Avoiding Analysis Paralysis 366Glossary 367Index 375