The sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country's economy is growing or shrinking and is considered the broadest indicator of economic output and growth. It is a chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and of how many available resources among factories, utilities and mines are being used commonly known as capacity utilization.
The manufacturing sector accounts for one-quarter of the economy. The capacity utilization rate provides an estimate of how much factory capacity is in use. The National Association of Purchasing Managers NAPM , now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders.
It is divided into manufacturing and non-manufacturing sub-indices. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods. It reports price changes in over categories. The CPI also includes various user fees and taxes directly associated with the prices of specific goods and services.
Durable Goods Orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. A durable good is defined as a good that lasts an extended period of time over three years during which its services are extended.
Payroll employment is a measure of the number of jobs in more than industries in all states and metropolitan areas. The employment estimates are based on a survey of larger businesses and counts the number of paid employees working part-time or full-time in the nation's business and government establishments.
The retail sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. It is the timeliest indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.
Retail sales include durable and nondurable merchandise sold, and services and excise taxes incidental to the sale of merchandise. Excluded are sales taxes collected directly from the customer. The Housing Starts report measures the number of residential units on which construction is begun each month.
A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Housing is very interest rate sensitive and is one of the first sectors to react to changes in interest rates.
To analyze, focus on the percentage change in levels from the previous month. Report is released around the middle of the following month. Economic indicators are snippets of financial and economic data published by various agencies of the government or private sector. These statistics, which are made public on a regularly scheduled basis, help market observers monitor the pulse of the economy. Therefore, they are religiously followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators in general have tremendous potential to generate volume and to move prices in the markets.
While on the surface it might seem that an advanced degree in economics would come in handy to analyze and then trade on the glut of information contained in these economic indicators, a few simple guidelines are all that is necessary to track, organize, and make trading decisions based on the data. Know exactly when each economic indicator is due to be released. Keep a calendar on your desk or trading station that contains the date and time when each stat will be made public.
You can use our economic calendar. Keeping track of the calendar of economic indicators will also help you make sense out of otherwise unanticipated price action in the market. As such, it's safe to assume that many traders are holding large short USD positions. However, on Friday the employment data for the U. It is very likely that with this key piece of economic information soon to be made public, the USD could experience a short-term rally leading up to the data on Friday as traders pare down their short positions.
The point here is that economic indicators can affect prices directly following their release to the public or indirectly as traders massage their positions in anticipation of the data. Understand what particular aspect of the economy is being revealed in the data. For example, you should know which indicators measure the growth of the economy GDP vs. After you follow the data for a while, you'll become very familiar with the nuances of each economic indicator and what part of the economy they are measuring.
Not all economic indicators are created equal. Well, they might've been created with equal importance but along the way, some have acquired much greater potential to move the markets than others. Market participants will place higher regard on one stat vs. Know which indicators the markets are keying on.
For example, if prices inflation are not a crucial issue for a particular country, inflation data will probably not be as keenly anticipated or reacted to by the markets. On the other hand, if economic growth is a vexing problem, changes in employment data or GDP will be eagerly anticipated and could precipitate tremendous volatility following their release.
The data itself is not as important as whether or not it falls within market expectations. Besides knowing when all the data will hit the wires, it is vitally important that you know what economists and other market pundits are forecasting for each indicator. For example, knowing the economic consequences of an unexpected monthly rise of 0. As mentioned, you should know that PPI measures prices and that an unexpected rise could be a sign of inflation. But analyzing the longer-term ramifications of this unexpected monthly rise in prices can wait until after you've taken advantage of the trading opportunities presented by the data.
Once again, market expectations for all economic releases are published on various sources on the Web and you should post these expectations on your calendar along with the release date of the indicator. Don't get caught up in the headlines. Part of getting a handle on what the market is forecasting for various economic indicators is knowing the key aspects of each indicator.
While your macroeconomics professor might have drilled the significance of the unemployment rate into your head, even junior traders can tell you that the headline figure is for amateurs and that the most closely watched detail in the payroll data is the non-farm payrolls figure. Other economic indicators are similar in that the headline figure is not nearly as closely watched as the finer points of the data. PPI for example, measures changes in producer prices. But the stat most closely watched by the markets is PPI, ex-food and energy.
Traders know that the food and energy component of the data is much too volatile and subject to revisions on a month-to-month basis to provide an accurate reading on the changes in producer prices. Speaking of revisions, don't be too quick to pull that trigger should a particular economic indicator fall outside of market expectations.
Contained in each new economic indicator released to the public are revisions to previously released data. For example, if durable goods should rise by 0. Look at revisions to older data because in this case, the previous month's durable goods figure might've been originally reported as a rise of 0. Don't forget that there are two sides to a trade in the foreign exchange market. So, while you might have a great handle on the complete package of economic indicators published in the United States or Europe, most other countries also publish similar economic data.
The important thing to remember here is that not all countries are as efficient as the G7 in releasing this information. Once again, if you are going to trade the currency of a particular country, you need to find out the particulars about their economic indicators. As mentioned above, not all of these indicators carry the same weight in the markets and not all of them are as accurate as others.
Do your homework and you won't be caught off guard. Now that you know the major economic events, learn about how you can incorporate both technical and fundamental analysis to your trading. Important economic indicators can change from time to time depending on the state of the US and global economy.
Sometimes leading indicators are important when Forex markets are trendless, at other times lagging indicators are important when Forex currency price movements are less pronounced. Whether looking at GDP, industrial production, PMI, PPI, CPI, durable goods, retail sales or housing starts, it's important to remember that no data point by itself can be responsible for a currency pair price movement, even though it may appear that way in the short run.
Traders can quickly change sentiment when economic data is released, so be ready for possibly more volatility and volume around these times. You can use technical analysis charting for more direction after data has been revealed.
Each country has economic indicators that tend to drive foreign exchange markets, so find the important economic data for the countries in the currency you trade most often. Foreign exchange trading carries a high level of risk that may not be suitable for all investors.
Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions. FXDD provides references and links to selected blogs and other sources of economic and market information as an educational service to its clients and prospects and does not endorse the opinions or recommendations of the blogs or other sources of information.
Clients and prospects are advised to carefully consider the opinions and analysis offered in the blogs or other information sources in the context of the client or prospect's individual analysis and decision making. None of the blogs or other sources of information is to be considered as constituting a track record.
Past performance is no guarantee of future results and FXDD specifically advises clients and prospects to carefully review all claims and representations made by advisors, bloggers, money managers and system vendors before investing any funds or opening an account with any Forex dealer. Any news, opinions, research, data, or other information contained within this website is provided as general market commentary and does not constitute investment or trading advice.
FXDD expressly disclaims any liability for any lost principal or profits without limitation which may arise directly or indirectly from the use of or reliance on such information. As with all such advisory services, past results are never a guarantee of future results. Industrial Production It is a chain-weighted measure of the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and of how many available resources among factories, utilities and mines are being used commonly known as capacity utilization.
Purchasing Managers Index PMI The National Association of Purchasing Managers NAPM , now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders. Durable Goods Durable Goods Orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.
Employment Cost Index ECI Payroll employment is a measure of the number of jobs in more than industries in all states and metropolitan areas. Retail Sales The retail sales report is a measure of the total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation.
Housing Starts The Housing Starts report measures the number of residential units on which construction is begun each month. General information regarding major economic indicators: When focusing exclusively on the impact that economic indicators have on price action in a particular market, the foreign exchange markets are the most challenging High Risk Warning. Obviously, factors other than economic indicators move prices and as such make other markets more or less potentially profitable.
But since a currency is a proxy for the country it represents, the economic health of that country is priced into the currency. One very important way to measure the health of an economy is through economic indicators.More...