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 Two, we will look at 3 of the economic indicators that can move markets; consumer confidence and spending, retail sales, and durable goods. And, if you missed it, check out Part One where we discuss gross domestic product, the employment situation, and price indexes.
Consumer Confidence and Spending
This is a category of reports made up of 3 reports you should be keeping an eye on. There is the U.S. Consumer Confidence Index (CCI), the University of Michigan Consumer Sentiment Survey, and the personal income and outlays (consumption) report. These three reports paint a comprehensive picture of how consumers feel about and act in the economy which is incredibly important as consumer spending makes up around 66% of the total economy.
These reports should all be read in conjunction with one another. The CCI and consumer sentiment survey tells investors how people are feeling about the economy and the consumption report shows how they are acting, spending wise. These reports tend to have an outsized influence on the stock and bond markets, depending on the economic context surrounding the report.
If all 3 are trending the same way, you should feel somewhat confident that what you are seeing in these markets is relatively accurate. If the feelings and the actions don’t match up, one way or the other, then you may be able to forecast a new trend–up or down–on the horizon.
The CCI is released the last Tuesday of the month, the consumption report comes on the last day of the month and the consumer sentiment survey is released in 2 phases, on the 15th and the last day of the month.
Retail Sales
The retail sales report provides data related to how and what consumers are spending on a retail level. This report, whether it is trending up or down can also be a very good indicator as to where the stock and bond markets might be heading.
The monthly reports themselves only tell you so much because there is a certain amount of variability. The best way to look at them is on a three-month rolling average or as year over year data. Comparing this report to the CPI also helps get a better picture of the overall economic direction. The U.S. Bureau of the Census releases retail sales figures in the middle of each month, usually between the 14th and 16th.
Durable Goods
After you look at all the economic health data, jobs, inflation, and consumer-based numbers, the other piece to the puzzle is manufacturing. The best way to track the overall health and trends that are happening in manufacturing is by looking at durable goods reports. Just like the other reports on this list, a falling durable goods report will signal a slowing economy (good for the bond market) and a report that trends upwards shows growth (good for the stock market).
This report can also be skewed by massive orders (particularly in the defense and transportation industries) coming through so it is good to group a few reports together in order to start spotting the overall trends.
The overall durable goods information can be surmised through two reports. The advanced report on durable goods orders comes out at the end of the month and the manufacturers’ shipments, inventories, and orders come out at the beginning of the next month.
The Bottom Line
There is no single economic indicator or set of indicators that can “predict” the economy in the weeks or months to come, but it can help you come up with various forecasts that you can use to find potential market opportunities or risks.
Know these indicators well, understand how markets react to them, and most importantly, don’t allow yourself to get sideswiped by these reports simply because you chose not to check the economic calendar ahead of time.
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.