Economic Indicators

Economic Indicators are one of the most valuable tools in a trader arsenal.
They are consistent in they release, wide in their scope and range, metrics such as Consumer Price Index (CPI), Non-Farm Payroll (NFP) and written reports like the “Beige Book” are all free for all investors and traders to inspect and analyze. Policymakers most notably those at the federal reverse use indicators to determine not only where the economy is going but how fast it is getting there.

Admittedly, economic indicator reports are often dry and the data is raw. In other words, information needs to be put in to context before it can be helpful in making any decisions regarding investments and asset allocation, but there is valuable information in those data releases. The various government and non-profit groups that conduct the surveys and release the reports do a very good job collating and cohesively presenting what would be impossible for any one person to do on their own. Most indicators provide nationwide coverage and many have detailed industry breakdowns, both of which can be very useful to individual investors and traders. In this article we will touch on the most important aspects of economic indicators and how they relate to individuals.

What is an economic indicators
In its simplest form, an indicator could be considered any piece of information that can help decipher what is going on in the economy. Any countries economy is essentially a living thing, at any given moment there are billions of moving parts, some acting some reacting. This simple truth makes prediction extremely difficult. They must involve a large number of assumptions, no matter what resources you have at your disposal to do the task. But with the help of a wide range of economic indicators you are better able to gain a better understanding of various economic conditions.

Use in Tandem and use in context
There are also indexes for coincident indicators and lagging indicators, the components of each are based on whether they tend to rise during or after an economic expansion. Once you understand how various indicators are calculated and their relative strength and limitations, several reports can be used in conjunction to make for more thorough decision-making. For example in the area of employment, consider using data from several releases, by using the hours-worked data (from the Employment Cost index) along with the (Labour report and Non-farm Payroll report). You can get a fairly complete picture of the state of the labour markets. Then cross reference this with; increasing retail sales figures that are being validated by increased personal expenditure. Then look to see how new Factory orders are leading to higher factory shipment through the Durable Goods Figures. Look up and down the supply chain to find validation of trends before acting on the results of any one indicators release.

Personalise your research
Some people may prefer to understand a couple of specific indicators really well and use their expert knowledge to make investment decisions based on their analyses. Others may wish to be jack of all trades, understanding the basics of all indicators without relying on any one too much. Whether you are trading the short term Forex trader making decisions on the highs and lows of the market you need to look at and read the indicators differently to say a long term stock market trader who rides the waves of the business cycles and is hoping for the market to return to be the steady and long term Historical growth of around 8-10% averages per year.

Mark your Calender.
It depends on the market you are investing in to which economic indicators and how many you need to watch. Trade long term or investing in stock you will need a good understanding of the overall economy of the country you a investing in. Whereas if you are trading the Forex market you may only need to look at the economic indicators that will directly affect the currency pairs you are trading. Because sometimes economic indicators take on a more important role as they contain very timely data. The Institute of Supply Management’s PMI report for instance is released on the first business day of every month, as such this is one of the first pieces of aggregate data available for the month just end, and the Non-farm Payroll report is released on the first Friday of every month 8:30am US ET. This report normally courses a reaction one way or the other and you can time you trades to take advantage of these moves.
The relative order in which the indicators are presented does not change from month to month. This predictability allows you to set times to prepare and the other up side to this is that you are keep informed with what is happening in the world’s economic events without all the hype. These benchmark pieces economic indicator data arrive with no agenda or sales pitch, the data is just that, data. And that is hard to find these days.
While there is no magic indicator that can dictate whether to buy or sell keeping abreast of what is happening in the market should be just part of your overall trading and investing plan that is why it is referred to as fundamental analyses.