Don’t get sideswiped by scheduled economic reports that you can see coming weeks ahead. Although some traders (and investors) don’t pay much attention to these reports, in the end, it can cost them in terms of opportunity or loss. Pay attention to economic calendars! And most importantly, pay attention to the following reports.
Here in Part One, we will look at 3 of the economic indicators that can move markets; gross domestic product, the employment situation, and price indexes. In Part Two, we will examine consumer confidence and spending, retail sales, and durable goods.
Gross Domestic Product
Econoday defines GDP as, “the total value of the country’s production during the period and consists of the purchases of domestically-produced goods and services by individuals, businesses, foreigners, and government entities.” Think of it as the comprehensive, overall health report of the economy.
While there are always caveats, the general idea behind GDP is that if the report is in line with expectations, the market tends to go up over time. If it is bad, the market goes down. Markets also react to the GDP vs. prior quarters and versus economists’ expectations ahead of the release.
The U.S. Department of Commerce releases two reports every quarter though, the standard GDP and the real GDP. The real GDP is adjusted for price changes so that is the one to watch as a better indicator of where the overall economy is headed.
The next GDP news release will be the 2nd Quarter (Advance Estimate) on July 30, 2020 at 8:30 A.M. EDT.
The monthly jobs report tells us a few different things. It gives us information on how many people are working versus looking for work, how much money people are making, and how many hours people are working. It is a broad picture of the (nonfarm) jobs situation in the U.S. Since there are usually no major surprises (COVID being the exception), the markets move based on whether the jobs report exceeds or falls short of expectations.
You can also glean some long-term indications from this report. If the growth doesn’t seem sustainable based on other reports, such as GDP, it may be a bad sign for future jobs reports and markets while, on the flip side, if the jobs report isn’t going up as fast as other key indicators say it should, it could be due for a major jump in the future.
The Bureau of Labor Statistics releases a new monthly jobs report on the first Friday of every month. The Employment Situation for July is scheduled to be released on Friday, August 7, 2020, at 8:30 a.m. (EDT).
The two major price indexes to keep an eye on are the consumer price index (CPI) and the producer price index (PPI). The CPI, also referred to as the cost of living, is the monthly average price of a group of commonly used goods and services. The PPI is the prices sellers are receiving for goods and services.
The CPI is the more widely watched of the two and is considered the main economic indicator of inflation on a monthly basis. It drives interest rates up or down and is a key indicator of the long-term direction of the markets. While major events can make it swing wildly in some months, the overall trend can help you game out which way the commodities and bond markets are going.
The PPI is less heralded, it can actually help you predict the CPI before many investors catch wind. If the PPI is trending up or down, that is an early, production-side indication of where CPI is heading once the inflation is passed on to the consumer.
The Bureau of Labor Statistics releases the CPI and PPI for the previous month the following month, generally during the second week. The June 2020 PPI data were scheduled to be released on July 10, 2020, at 8:30 A.M. Eastern Time. The Consumer Price Index for June 2020 were scheduled to be released on Tuesday, July 14, 2020 at 8:30 a.m. (EDT).
Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations. There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.