Institute for Supply Management (ISM) – Formerly known as the NAPM. Change was effective in January 2002. ISM is a composite diffusion index of national manufacturing conditions. Readings above 50% indicate an expanding factory sector. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic date like the ISM, investors will know what the economic backdrop is for the various markets. The ISM gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data.
Jobless Claims – A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. This indicator, and more importantly, its four-week moving average, portends in the labor market. Jobless claims are an easy way to gauge the strength of the job market. The fewer people filling for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income which gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so the stronger the job market, the healthier the economy. By tracking the number of jobless claims, investors can gain a send of how tight the job market is. If wage inflation threatens, it’s a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events. The lower the number of unemployment claims, the stronger the job market is, and vice versa.
Leading Indicators – A composite index of ten economic indicators that typically lead overall economic activity. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The index of Leading Indicators is designed to predict turning points in the economy such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index.
Money supply – The monetary aggregates are alternative measures of the money supply by degree of liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as well as the outlook for economic activity and inflationary pressures. The monetary aggregates (know individually as M1, M2 and M3) used to be all the rage a few years back because the data revealed the Fed’s (tight or loose) hold on credit conditions in the economy. The Fed issues target ranges for money supply growth. In the past, if actual growth moved outside those ranges it often was a prelude to an interest rate move from the Fed. Today, monetary policy is understood more clearly by the level of the federal funds rate. Money supply fell out of vogue in the nineties, due to a variety of changes in the financial system and the way the Federal Reserve conducts monetary policy. The Fed is working on some new measures of money supply, and given the way economic indicators ebb and flow in popularity, don’t be surprised if the monetary aggregates make a comeback in the future.
Institute for Supply Management (ISM) – Formerly known as the NAPM. Change was effective in January 2002. ISM is a composite diffusion index of national manufacturing conditions. Readings above 50% indicate an expanding factory sector. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic date like the ISM, investors will know what the economic backdrop is for the various markets. The ISM gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight on commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report which helps it to determine the direction of interest rates when inflation signals are flashing in these data.
Jobless Claims – A weekly compilation of the number of individuals who filed for unemployment insurance for the first time. This indicator, and more importantly, its four-week moving average, portends in the labor market. Jobless claims are an easy way to gauge the strength of the job market. The fewer people filling for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income which gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so the stronger the job market, the healthier the economy. By tracking the number of jobless claims, investors can gain a send of how tight the job market is. If wage inflation threatens, it’s a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events. The lower the number of unemployment claims, the stronger the job market is, and vice versa.
Leading Indicators – A composite index of ten economic indicators that typically lead overall economic activity. Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The index of Leading Indicators is designed to predict turning points in the economy such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index.
Money supply – The monetary aggregates are alternative measures of the money supply by degree of liquidity. Changes in the monetary aggregates indicate the thrust of monetary policy as well as the outlook for economic activity and inflationary pressures. The monetary aggregates (know individually as M1, M2 and M3) used to be all the rage a few years back because the data revealed the Fed’s (tight or loose) hold on credit conditions in the economy. The Fed issues target ranges for money supply growth. In the past, if actual growth moved outside those ranges it often was a prelude to an interest rate move from the Fed. Today, monetary policy is understood more clearly by the level of the federal funds rate. Money supply fell out of vogue in the nineties, due to a variety of changes in the financial system and the way the Federal Reserve conducts monetary policy. The Fed is working on some new measures of money supply, and given the way economic indicators ebb and flow in popularity, don’t be surprised if the monetary aggregates make a comeback in the future.
New home sales – The number of newly constructed homes with a committed sale during the month. The level of new home sales indicates housing market trends. This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as new home sales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and the realtor. Trends in the new home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Nonfarm Payroll – The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time and full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. This is without a doubt the economic report that move the markets the most. The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they’re getting paid and how many hours they are working. These numbers are the best way to gauge the current state and future direction of the economy. They also provide insight on wage trends, and wage inflation is high on the list of enemies for the Federal Reserve. By tracking the jobs data, investors can sense the degree of tightness in the job market.
Personal Income – Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods and services. The income and outlays data are another handy way to gauge the strength of the economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed. Needless to say, that’s a big advantage for investors.
Philadelphia Fed Survey – A composite diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey is widely followed as an indicator of manufacturing sector trends since it is correlated with the ISM survey and the index of industrial production. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behaviour. Some of the Philly Fed sub-indexes also provide insight on commodity prices and other clues on inflation.
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. It is divided into manufacturing and non-manufacturing sub-indices.
Producer Price Index (PPI) – PPI is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. The PPI measures price changes in the manufacturing sector. It measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries for their output. Inflation at this producer level often gets passed through to the consumer price index (CPI). The relationship between inflation and interest rates is the key to understanding how data like the PPI influence the markets and your investments.
Retail Sales – Retail sales measure the total receipts at stores that sell durable and nondurable goods. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales date can help you spot specific investment opportunities, without having to wait for a company’s quarterly or annual report.
Retail Prices Index (RPI) - The RPI is the UK’s principal measure of consumer price inflation. It is defined as an average measure of change in the prices of goods and services brought for the purpose of consumption by the vast majority of households in the UK. It is complied and published monthly. Once published, it is never revised. RPI includes date on food and drink, tobacco, housing, household goods and services, personal goods and services, transport fares, motoring costs, clothing and leisure goods and services. Measures of inflation are vital tools for economists, business and government. The Bank of England’s Monetary Policy Committee sets UK interest rates on the basis of a target figure for inflation set by Chancellor of the Exchequer. Wage agreements, pensions and change in benefit levels are often linked directly to the RPI. Utility regulators impose restrictions on price movements based on the RPI.
Trade Balance - The balance of trade is a statement of a country’s trade in goods (merchandise) and services. It covers trade in products such as manufactured goods, raw materials and agricultural goods, as well as travel and transportation. The balance of trade is the difference between the value of the goods and services that a country exports and the value of the goods and services that it imports. If a country’s exports exceed its imports, it has a trade surplus and the trade balance is said to be positive. If imports exceed exports, the country has a trade deficit and its trade balance is said to be negative.
The balance of trade sometimes refers to trade in goods only. The term should not be confused with the balance of payments, which is a much broader statement of international monetary flows, including not only trade in goods and services, but also investment income flows and transfer payments. A positive or negative balance may simply reflect a change in the relative cost of domestic products compared with international prices. For industries that rely heavily on exports, like the auto sector, a positive balance of trade may reflect a higher international demand, which can mean more jobs in that industry.
Unemployment rate - Percentage of employable people actively seeking work, out of the total number of employable people determined in a monthly survey by the Bureau of Labor Statistics. An unemployment rate of about 4% - 6% is considered “healthy”. Lower rates are seen as inflationary due to the upward pressure on salaries; higher rates threaten a decrease in consumer spending.
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successful trading session part 1
Major Indicators part 2
Books part 3
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