Economic Indicators explained by professional Forex trading experts the “ForexSQ” FX trading team.
Economic indicators consist of financial and economic data that allow analysis of economic performance and predict future performance.
Regularly published by governmental agencies and the private sector, economic indicators help market observers follow financial market movements through indices, earning reports and economic summaries.
How to Benefit from Economic Indicators?
Economic indicators help you consider trades in the context of economic events and understand price actions during these events. You do not need advanced knowledge of economics to make use of an economic calendar, as not every single data release must be analyzed in-depth.
By following GDP indicators, for instance, or inflation and employment strength, you can anticipate market volatility and identify potential trading opportunities.
You should also know which economic indicators have a greater impact in terms of trading. For example, leading indicators change before the economy starts following a trend – they predict economic changes.
Lagging indicators, on the other hand, change after the economy has already started following a trend – they confirmeconomic changes.
Most Important Economic Indicators
Let’s see the economic indicators that are most useful to you:
GDP (Gross Domestic Product)
It indicates the economic growth of a country, and it’s determined by product output, income and expenditure. GDP is often correlated with the living standard. It is the market value of all services and goods produced in a country during a certain time period.
Non-farm payroll employment
Monthly report released by the US Department of Labor. It provides statistical data about the current state of the US labor market. It is also used to forecast future levels of economic activity.
The percentage of unemployed people. It is measured by the ratio of people who are out of work and who are willing and able to work as opposed to the total number of people in the work force. It is an indicator that changes along with economy (=lagging indicator). It gives you hints about future interest rates and monetary policies.
CPI (Consumer Price Index)
Statistical estimate that measures changes in the price of services and consumer goods. CPI is used as a measure of inflation, as it reports price changes in over 200 categories.
CCI (Consumer Confidence Index)
Measures consumer confidence (e.g. a drastic decrease in consumer confidence may be a sign of a weakening economy).
PMI (Purchasing Managers Index)
Indicates economic activity. It shows the percentage of company/business employees in charge of goods and service acquisition (called purchasing managers) in a particular economic sector. PMI over 50 usually indicates an expanding economy, while anything below 50 indicates economic contraction.
Monthly report that measures consumer expenditure (an essential indicator of GDP in the US). As a timely indicator of broad consumer spending patterns, it can be used to assess the immediate direction of an economy.
Average Hourly Earnings
A leading indicator of consumer expenditure. It evaluates the inflation level incurred by all economic sectors (excluding the farming industry) when wages are being paid to employees.
IPCU (Industrial Production and Capacity Utilization)
Measures economic activity. It’s released by the US Federal Reserve in the form of a monthly report, and it shows data for the previous month about the total amount of US industrial production. The IPCU encourages buying or selling in certain industries.
Durable Goods Orders
Key indicator of future manufacturing activity.
ECI (Employment Cost Index)
A quarterly economic series that indicates the rising and falling tendencies in employment costs. It measures inflation in salaries, wages and employer-paid benefits in the US.
Gross Domestic Product Deflator
A measure of price levels for all goods and services in an economy. The use of the deflator helps to calculate the difference between the nominal and real GDP.
IP (Industrial Production)
Indicates the changes in output for the industrial sector (e.g. manufacturing, mining). It indicates the industrial capacity of a country.
IFO (Institute for Economic Research)
A business survey based on the feedback of over 7,000 German business leaders. Based on latest economic data, it provides assessment of the current and upcoming economic climate in Germany and Europe.
International Trade (Trade Balance)
Measures the difference – imports vs. exports – of all goods and services. Market trends are indicated by changes in imports and exports, together with the level of the international trade balance.
NAPM Index (National Association of Purchasing Manager)
Measures economy in general, and the manufacturing sector in particular. It sums up the survey of over 250 companies in all US states, and it calculates data on production, new orders, and employment.
PPI (Producer Price Index)
A frequently used economic indicator that measures the average changes in selling prices received by domestic producers in manufacturing, mining, electric utility, and agriculture.
Tankan (Short-period Economic Observation)
A quarterly business poll issued by the Bank of Japan on the status of the Japanese economy. It affects the currency rate and stocks significantly, so it’s considered a major financial indicator in Japan.
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