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Basic Economic indicators

09/08/10. Basic Economic indicators. Beige Book. Federal Reserve’s assessment of the economy. No new data. Insight into Fed’s mindset. Can hint at changing interest rate policies. Interest rate = cost of borrowing money. Consumer Confidence Index (CCI).

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Basic Economic indicators

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  1. 09/08/10 Basic Economic indicators

  2. Beige Book • Federal Reserve’s assessment of the economy. • No new data. • Insight into Fed’s mindset. • Can hint at changing interest rate policies. • Interest rate = cost of borrowing money.

  3. Consumer Confidence Index (CCI) • 5000 consumers surveyed about their attitude towards the economy. • Tied to consumer spending, upon which many businesses depend. • Useful, but not always reliable.

  4. Durable Goods Orders • Durable goods = capital goods expected to last 3+ years. • Advance = estimate of data. • Report = actual data (2 weeks later). • Directly tied to manufacturing industries. • Shows growth potential for entire economy, since growth requires investment.

  5. Employment Cost Index (ECI) • Measures the cost of compensation in various industries and the entire economy. • Labor costs are a huge part of overall business costs. • Changes in these costs have powerful impact on profits and/or prices. • The ECI is also a good sign of potential inflation.

  6. Employment Situation Report (ERS) • Incorporates two surveys to measure employment conditions. • Wide variety of information. • Most important figure from ERS = unemployment rate. • Hard to judge application of data at face value; understanding forces behind change is crucial.

  7. Existing Home Sales/Housing Starts • Two separate indicators. • Important ripple effect in economy. • Directly tied to housing industry/financial industry.

  8. Gross Domestic Product (GDP) • Broadest indicator of economy as a whole. • Gives a sense of the economy’s value. • Announcements can cause huge price adjustments to the stock market.

  9. Jobless Claims • The number of first time filings for unemployment insurance. • Insight into the direction of unemployment rate.

  10. Price Indices (PPI/CPI) • PPI = Producer Price Index. • CPI = Consumer Price Index. • Primary measure of inflation. • High inflation = high interest rates.

  11. Retail Sales • Total consumer spending. • Revenues from retail sales drive business profits, either directly or indirectly. • Individual sectors can be analyzed for revenue strength or weakness, which can be crucial for accurate stock valuation.

  12. Sources • http://www.investopedia.com/university/releases/default.asp • http://www.rbcpa.com/economic_fundamentals.pdf • http://17ave.blogspot.com/2009/01/10-most-important-economic-indicators.html • http://online.barrons.com/public/page/barrons_econoday.html?mod=BOL_hpp_tnav_market

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