Fundamental Indicators

[darwisy]

Introduction

Sekiranya kita tiada idea atau tidak mengerti apa yang dimaksudkan dengan CPI, PMI, EMC and etc, kita sebenarnya boleh dikategorikan sebagai most beginning investor. Thread ini akan menerangkan serba sedikit tentang ECONOMIC INDICATORS serta term nya yang memberi kesan kepada our investment i.e forex, stock, bond etc dengan tujuan untuk enhance our knowledge.

Economic Indicators digunakan oleh Federal Reserve untuk monitor inflasi. When, its reflect inflationary pressure, the Fed akan meningkatkan interest rates. Sebaliknya, jika ia menunjukkan tanda deflation, interest rate akan diturunkan.

Interest rate sangat penting bagi perkembangan ekonomi kerana ia mempengaruhi kecenderungan individu dan perniagaan untuk meminjam wang dan membuat investment. Peningkatan interest rate akan menyebabkan downturn dalam ekonomi, sementara penurunan akan memberi perkembangan pada ekonomi.

The purpose of this guide adalah untuk explain in simple terms bagi 20 economic indicators diikuti dengan analisis. Sekiranya anda mendengar these terms dalam media ataupun financial press, anda boleh menggunakan informasi ini sebagai guideline untuk menilai potensi & kesannya ke atas ekonomi.



1. Consumer Confidence Index

Definasi Ringkas:
Satu survey daripada 5,000 consumers/pengguna berkenaan dengan attitude mereka tentang situasi dan expectation keadaan ekonomi semasa.

Kepentingan:
Laporan ini sangat membantu dalam mempredik sudden shifts dalam consumption pattern. Since consumer atau pengguna memberi pengaruh 2/3 dari ekonomi, ia memberi kita petanda tentang direction ekonomi. Walaubagaimanapun, perubahan index perlu sekurangnya 5 points untuk memberi kesan yang significant.

Sumber:
The Conference Board

Waktu Release:
Selasa terakhir setiap bulan pada pukul 10.00am ET (Eastern Standard Time).

Kekerapan:
Setiap Bulan

Revision:
Data mungkin di revise setiap bulan berdasarkan lebih respon survey yang telah disiapkan. Significant untuk revision adalah rendah.

Raw Data: http://www.tcb-indicators.org/

More Info in English version

Background
The Consumer Confidence Index (CCI) is a monthly release from the Conference Board, a non-profit business group that is highly regarded by investors and the Federal Reserve. CCI is a unique indicator, formed from survey results of more than 5,000 households and designed to gauge the relative financial health, spending power and confidence of the average consumer.

There are three separate headline figures: one for how people feel currently (Index of Consumer Sentiment), one for how they feel the general economy is going (Current Economic Conditions), and the third for how they see things in six months' time (Index of Consumer Expectations).

The Consumer Sentiment Index is a component of the Conference Board’s template of economic indicators. Historically, changes in this index (of the three released) has tracked the leading edge of the business cycle well.

There are other sentiment indicators that can sometimes be confused with the Consumer Sentiment report or used in conjunction with it, such as the University of Michigan Sentiment Report, and some investors will try to average the two reports to get their own sense of consumer sentiment. (For background reading, see Understanding The Consumer Confidence Index and Consumer Confidence: A Killer Statistic.)

What it Means for Investors
A strong consumer confidence report, especially at a time when the economy is lagging behind estimates, can move the market by making investors more willing to purchase equities. The idea behind consumer confidence is that a happy consumer - one who feels that his or her standard of living is increasing - is more likely to spend more and make bigger purchases, like a new car or home.

It is a highly subjective survey, and the results should be interpreted as such. People can grab onto a small situation that garners a lot of mainstream press, such as gas prices, and use that as their basis for overall economic conditions, fair or not. There are no real data sets here, and people are not economists, so they cannot be counted on to realize that, for example, because gas prices may only represent 5% of their expenses, they should not sour their entire economic outlook.




Because of its subjective nature and relatively small sample size, most economists will look at moving averages of between three and six months for consumer confidence figures before predicting a major shift in sentiment; some also feel that index level changes of at least five points are necessary before calling for the reversal of an existing trend. In general, however, rising consumer confidence will trend in line with rising retail sales and, personal consumption and expenditures, consumer-driven indicators that relate to spending patterns.

Regional breakdowns of the data are valuable for seeing the breadth of sentiment across the country, which can be a useful factor in the real estate market, along with indicators such as housing starts and existing home sales.

Strengths

* One of few indicators that reaches out to average households
* Has historically been a good predictor of consumer spending and, therefore, the gross domestic product (consumer spending makes up more than two-thirds of real GDP)

Weaknesses:

* A subjective survey with no physical data sets
* Small sample size (only 5,000 households)
* Survey results may contradict other indicators, such as GDP and the Labor Report

The Closing Line
Sentiment indicators can carry a lot of weight - there are so few that are standardized like Consumer Confidence and, in the final analysis, the happiness and spending ability of Joe Consumer is the most important determinant of an expanding economy.

 

[darwisy]

2. Consumer Price Index

Definisi Ringkas:
Satu index yang mengukur perubahan harga yang merangkumi barangan dan perkhidmatan seperti food, energy, housing, clothing, transportation, medical care, entertaintment and education. Ia juga boleh dikategori sebagai cost of living index.

Kepentingan:
Sangat penting dalam mengawasi/monitor CPI yang tidak termasuk harga untuk Makanan & Energy untuk melihat kestabilan bulanan. Ini dirujuk sebagai "core CPI" dan memberi satu gambaran yang jelas bagi trend inflasi.

Kadar perubahan dalam core CPI adalah satu kunci bagi mengukur inflasi seperti ekonomi US. Tekanan inflasi akan terjadi apabila post core CPI lebih besar dari expected gains.

Sumber:
Bureau of Labor statistics, U.S. Depertment of Labor.

Availability:
Setiap 13hb pada pukul 8.30am ET.

Kekerapan:
Setiap Bulan

Raw Data: http://stats.bls.gov/news.release/cpi.toc.htm

More Info in English version

Background
The Consumer Price Index (CPI) is the benchmark inflation guide for the U.S. economy. It uses a "basket of goods" approach that aims to compare a consistent base of products from year to year, focusing on products that are bought and used by consumers on a daily basis. The price of your milk, eggs, toothpaste and hair cut are all captured in the CPI.

There are two presented CPI figures, the CPI for Urban Wage Earners and Clerical Workers (CPI-W), and the CPI for all Urban Consumers (CPI-U). The most watched metric, Core CPI (with food and energy prices removed) is the CPI-U, which will usually be presented with a seasonal adjustment, as consumer patterns vary widely depending on the time of year. The current base year for the CPI is 1982, so changes will typically be provided on a percentage basis to reflect only changes to prior index levels. Numbers will also be shown as an annual run rate of growth, to give investors a sense of the near-term inflationary outlook.

The Chain-Weighted CPI is also released along with the Core CPI, and is gaining momentum as a metric worth following, as Chain-Weighted CPI captures the effects of consumer choice. Chain-weighted CPI numbers are considered by many to be more reflective of actual consumer patterns than fixed CPI figures, as the chain-weighted index accounts for the substitution and new product bias that exists in the fixed CPI. If a consumer buys one product over another because of a price hike in the first product, chain-weighted figures will capture this buying shift, while Core CPI will not. Core CPI will continue measuring the price of the good as it rises, regardless of whether fewer people are purchasing the product.

The CPI is an extremely detailed release, with breakouts for most major consumer groups (such as food and beverage, apparel, recreation, etc.) and geographical regions, which are supplied by the "CPI U.S. City Averages". (For background reading, see The Consumer Price Index Controversy and The Consumer Price Index: A Friend To Investors.)

What it Means for Investors
The CPI is probably the single most important economic indicator available, if for no other reason than because it's very final. Many other indicators derive most of their value from the predictive ability of the CPI, so when this release arrives, many questions will be answered in the markets. This report will often move both equity and fixed-income markets, both the day of the release and on an ongoing basis. It may even set a new course in the markets for upcoming months. Analysts will be more sure of their convictions about what the Fed will do at the next Federal Open Market Committee meeting after digesting the Consumer Price Index.




The CPI is used to make adjustments to many cash flow mechanisms (pensions, Medicare, cost of living adjustments to insurance policies, etc.). As a result, most investors will find that the CPI affects them personally in some way. Fixed-income investors should always be aware of the rate of inflation against which they judge their investments; it is imperative to keep current yields ahead of inflation, or real wealth will fall.

Strengths:

* Gives most insight into future Fed rate moves
* Highly watched and analyzed in the media
* Good regional and industry breakdowns for investor research

Weaknesses:

* Volatile month to month
* Fixed CPI has certain biases (new product, substitution), which can distort results
* Exclusion of food and energy is only good for so long - these costs should be considered when assessing inflation


The Closing Line
The CPI is one of the most important indicators in terms of moving the markets and setting monetary policy for the Fed. Consider looking at both the fixed and chain-weighted CPI.

 

[darwisy]

3.Chicago Purchasing Managers' Index (PMI)

Definisi:
Berdasarkan survey ke atas lebih 400 purchasing managers berkenaan dengan industri perkilangan di kawasan Chicago yang pengagihan firma perkilangan mencerminkan pengagihan secara national.

Kepentingan:
Melalui Philadelphia Fed Index, dapat membantu mempredik forecast untuk result ISM Index yang akan di release pada hari berikutnya. ISM Index adalah satu leading indicator untuk keseluruhan aktiviti ekonomi.

Readings above 50% mengindikasi satu perkembangan dalam sektor perkilangan, manakala nilai yang kurang dari 50% memberi indikasi contraction atau kelemahan industri perkilangan.

Sumber:
Chicago Purchasing Managers Association.

Availability:
Business day terakhir dalam sesuatu bulan pada jam 10.00am ET. Data adalah dari bulan semasa/current month.

Kekerapan:
Setiap Bulan

Revisions:
Data hanya di revise setahun sekali. Significant untuk revise ini adalah rendah.

More Info in English version

Background
The Institute for Supply Management (ISM) has is responsible for maintaining the Purchasing Managers Index (PMI), which is the headline indicator in the monthly ISM Report on Business.The ISM is a non-profit group boasting more than 40,000 members engaged in the supply management and purchasing professions.

The PMI is a composite index of five "sub-indicators", which are extracted through surveys to more than 400 purchasing managers from around the country, chosen for their geographic and industry diversification benefits. The five sub-indexes are given a weighting, as follows:

* Production level (.25)
* New orders (from customers) (.30)
* Supplier deliveries - (are they coming faster or slower?) (.15)
* Inventories (.10)
* Employment level (.20)

A diffusion process is done to the survey answers, which come in only three options; managers can either respond with "better", "same", or "worse" to the questions about the industry as they see it. The resulting PMI figure (which can be from 0 to 100) is calculated by taking the percentage of respondents that reported better conditions than the previous month and adding to that total half of the percentage of respondents that reported no change in conditions. For example, a PMI reading of 50 would indicate an equal number of respondents reporting "better conditions" and "worse conditions".

What it Means for Investors
PMI is a very important sentiment reading, not only for manufacturing, but also the economy as a whole. Although U.S. manufacturing is not the huge component of total gross domestic product (GDP) that it once was, this industry is still where recessions tend to begin and end. For this reason, the PMI is very closely watched, setting the tone for the upcoming month and other indicator releases.

The magic number for the PMI is 50. A reading of 50 or higher generally indicates that the industry is expanding. If manufacturing is expanding, the general economy should be doing likewise. As such, it is considered a good indicator of future GDP levels. Many economists will adjust their GDP estimates after reading the PMI report. Another useful figure to remember is 42. An index level higher than 42%, over time, is considered the benchmark for economic (GDP) expansion. The different levels between 42 and 50 speak to the strength of that expansion. If the number falls below 42%, recession could be just around the corner. (To learn more, read Recession: What Does It Mean To Investors?)

As with many other indicators, the rate of change from month to month is vital. A reading of 51 (expanding manufacturing industry) coming after a month with a reading of 56 would not be seen favorably by the markets, especially if the economy had been showing solid growth previously.

The PMI can be considered a hybrid indicator in that is has actual data elements but also a confidence element, like the Consumer Confidence Index. Answers are subjective, and may not always relate to events as much as perceptions. Both can have value to investors looking to get a sense of actual experiences as well as see the PMI index level itself.

Bond markets may look more intently at the growth in supplier deliveries and prices paid areas of the report, as these have been historical pivot points for inflationary concerns. Bond markets will usually move in advance of an anticipated interest rate move, sending yields lower if rate cuts are expected and vice versa. (For more insight, see Get Acquainted With Bond Price/Yield Duo.)

PMI is considered a leading indicator in the eyes of the Fed, as evidenced by its mention in the FOMC minutes that are publicly released after its closed-door meetings. The supplier deliveries component itself is an official variable in calculating the Conference Board's U.S. Leading Index.

There are regional purchasing manager reports, some of which come out earlier than the PMI for a given month, but the PMI is the only national indicator.

Strengths:

* Very timely, coming out on the first day of the month following the survey month
* A good predictor of future releases, such as GDP and the Bureau of Labor Statistics (BLS) manufacturing reports
* Anecdotal remarks within the release can provide a more complete perspective from actual professionals (like in the Beige Book).
* Report displays point changes from the previous report, along with the length in months of any long-term trends shown for the "sub-indicators", such as inventories or prices.
* Commodities, such as silver, steel and copper are reported individually regarding the supply tightness and price levels noted in the previous month.

Weaknesses:

* Only covers manufacturing sector - the PMI Non-Manufacturing Business Report covers many other industries in the same manner
* Survey is very subjective in its data retrieval compared to other indicators.
* Regional reports released earlier (Philly Fed, Chicago NAPM) may have high correlations and can take some of the steam out of this release.

The Closing Line
The PMI is a uniquely constructed, timely indicator with a lot of value on Wall Street.

It is most useful when taken in context with more data-driven indicators, such as the Producer Price Index and GDP, or in conjunction with the ISM Report Non-Manufacturing Report on Business.

 

[darwisy]

4. Durable Goods Orders

Definisi:
Secara official ia adalah Advance Report on Durable Goods Manufacturers' Shipment and Orders. Ini adalah satu 'government index' yang menghitung volume dollar dari orders, shipments and unfilled orders of durable goods.

Durable goods yang baru atau used item secara general jangkaan normal life adalah 3 tahun atau lebih. Biasanya analisis tidak termasuk defense and transportation order kerana volatility nya.

Kepentingan:
Report ini memberi informasi kepada kita tentang kekuatan permintaan/demand terhadap manufacture durable goods US baik dari domestik ataupun dari luar.

Bila index ini menaik, ia memberi petunjuk permintaan atau demand semakin kuat yang akan memungkinkan keputusan dalam peningkatan production dan pekerjaan/employment. Kejatuhan index memberi kesan yang sebaliknya.

Ia juga adalah satu indicator awal bagi menentukan demand pengguna dan perniagaan terhadap equipment. Peningkatan pengeluaran akan menurunkan prospect of inflation.

Sumber:
The Census Bureau of the Department of Commerce.

Availability:
Sekitar 26hb jam 8.30am ET. Data adalah berdasarkan bulan sebelumnya.

Kekerapan:
Setiap Bulan

Revision:
Data di revise secara monthly daripada data 2 bulan sebelumnya untuk mendapatkan informasi yang lebih lengkap.

Raw Data:
http://www.census.gov/

More Info in English version

Background
The Advance Report on Durable Goods Manufacturer's Shipments, Inventories and Orders, or the Durable Goods Report, provides data on new orders received from more than 4,000 manufacturers of durable goods, which are generally defined as higher-priced capital goods orders with a useful life of three years or more, such as cars, semiconductor equipment and turbines.More than 85 industries are represented in the sample, which covers the entire United States.

Figures are provided in current dollars along with percentage change from prior month and prior year for new orders, total shipments, total unfilled orders (orders that have been booked but not filled as of month-end) and inventories. Revisions are also included for the prior three months if they materially affect prior-released results.

The data compiled for consumer durable goods is one of the 10 components of the Conference Board's U.S. Leading Index, as growth at this level has typically occurred in advance of general economic expansion.

What it Means for Investors:
The headline figure will often leave out transportation and defense orders, as they can show higher volatility than the rest of the areas. In these industries, the ticket prices are sufficiently high that the sample error alone could swing the presented figure significantly.

It is useful for investors not only in the nominal terms of order levels, but as a sign of business demand as a whole. Capital goods represent the higher-cost capital upgrades a company can make, and signals confidence in business conditions, which could lead to increased sales further up the supply chain and gains in hours worked and non-farm payrolls.

Investors can play with the numbers here and look at things such as the rates of growth of inventories versus shipments; changes in the inventory/shipments ratio over time can point to either demand (falling ratio) or supply (rising ratio) imbalances in the economy.




Because capital goods take longer on average to manufacture than cyclical goods, new orders are often used by investors to gauge the likelihood of sales and earnings increases by the companies who make them. For instance, a company like Boeing could make revenue adjustments on the upside based on strong new order growth, signs of which could be gleaned from the Durable Goods Report. In addition, when production and capacity at U.S. manufacturers is rising, it helps to combat inflationary pressure, as more goods will be produced for consumer purchase.

Investors should be cautious to see through the high levels of volatility found in areas of the Durable Goods Report. Month-to-month changes should be compared with year-over-year figures and year-to-date estimates, looking for the overall trends that tend to define the business cycle.

Strengths:

* Good industry breakdowns
* Data provided raw and with seasonal adjustments
* Provides forward-looking data such as inventory levels and new business, which count toward future earnings.

Weaknesses:

* The survey sample does not carry a statistical standard deviation to measure error.
* Highly volatile; moving averages should be used to identify long-term trends


The Closing Line
The Durable Goods Report gives more insight into the supply chain than most indicators, and can be especially useful in helping investors get a feel for earnings potential in the most represented industries: machinery, technology manufacturing and transportation.

 

[darwisy]

5. Employment Cost Index (ECI)

Definisi:
ECI direka khusus untuk mengukur perubahan dalam kos pekerjaan termasuk pengupahan gaji dan benefit.

Kepentingan:
Ia berguna dalam menilai atau evaluate tren pengupahan gaji dan risiko 'wage inflation'/kadar inflasi upah. Jika wage inflation mengancam, ia mendorong kenaikan interest rate, yang menyebabkan harga bond dan stock akan jatuh.

Sumber:
U.S Department of Labor, Bureau of Labor Statistics.

Availability:
Business day terakhir bulan Januari, April, Julai dan Oktober pada 8.30am ET. Data berdasarkan 3 bulan sebelumnya.

Kekerapan:
Setiap 3 bulan atau quaterly.

Revision:
New seasonal adjustment faktor akan diperkenalkan setiap tahun. This revision affects at least 5 years worth of data. The significance of this revision can be substantial.

Raw Data:
http://stats.bls.gov/news.release/eci.toc.htm

More Info in English version

Background
The Employment Cost Index (ECI) is a quarterly report of compensation costs that is released in the final month of the quarter, with a cutoff date of payroll periods ending the twelfth of the month of the release. The ECI is an index-based indicator that presents the changes in wages, bonuses and benefits from the previous quarter, displayed on a per-hour basis. All non-farm industries are covered, with the exception of federal government employees (which only make up 2-3% of the work force).

The data is provided by the Bureau of Labor Statistics (BLS) and is broken down by industry group, occupation and union vs. non-union workers. The data is compiled through separate surveys of non-farm businesses (about 4,500 sampled) and state and local governments (about 1,000 sampled). The index has a base weighting of 100. The current base period is December 2005.

What it Means for Investors
The ECI is watched primarily for its inflationary insights. Compensation costs represent the lion's share of the total cost for a company to produce a product or deliver a service in the marketplace (and can be computed per company by dividing cost of goods sold (COGS) by selling, general & administrative expense (SG&A) on the company's income statement). The relative percentages of COGS will vary by industry, making the data release valuable on an inter-industry level.

The ECI is used by the Federal Reserve to set monetary policy; as the Fed has publicly stated, it prefers the value of this release to the Employment Situation Report's hourly cost figures, which just include wages. Another benefit of the methodology used in the ECI is that wage changes that occur as a result of a shift in the occupational mix of workers can be captured here using a "basket of occupations" approach similar to that of the CPI. Results of the ECI are less likely to be affected by people shifting to lower or higher-paying jobs.

The ECI is a lagging indicator; rising costs at this level speak to economic overheating that has already been visible at earlier points in the economic food chain (commodity costs, retail sales, gross domestic product), and suggest that some rise in inflation is inevitable.

This indicator can move the markets if it shows marked differences from street estimates. Economists and Fed watchers are always on the lookout for surprise signs of inflation, and anything that changes the common perceptions on Wall Street as to the level of inflation will move the bond markets immediately, and stocks will react according to its recent performance relative to economic growth prospects. The deeper into the business cycle the economy is, the more likely it will be for stocks to sell off on fears of Fed rate cuts, and possibly the end of the growth phase within the current cycle.

Rising compensation costs are usually passed on to consumers because they are such a large corporate expense.




The ECI is used as part of the formula that calculates productivity. If productivity gains are less than proportional ECI gains, there won't be the necessary balance to keeping end prices to consumers down. Investors should always compare the ECI to total productivity figures, paying particular attention to relative rates within industries in which they have a stake.

Strengths:

* The ECI calculates the total set of employee costs to businesses, not just wages. Health insurance, pensions and death-benefit plans, and bonuses are all calculated here and broken out separately from wages and salaries.
* Data is provided with and without a seasonal adjustment.
* Well respected by both the Fed and business leaders; company managers use the ECI to compare their own compensation costs relative to their industries
* Rates of change are showed from the previous quarter and on a year-over-year basis.

Weaknesses:

* The data is only released quarterly, and with a slight overlap, covering a mid-month period.
* Hourly earnings shown in the monthly Employment Situation Report provide some headway into this release, taking some of the surprise value out of wages.
* Can be volatile when periodic bonuses, commission payments and the like are taken into account (especially at year-end); economist interpretation is often needed to fully digest the report.

 

[darwisy]

6. Employment Situation

Definisi:
Report ini menyenaraikan nombor penggajian pekerjaan (no. of payroll jobs) di semua pertubuhan business bukan pertanian (non-farm business) dan agensi-agensi kerajaan. 'Unemployment rate', 'average hourly & weekly earning', and 'the length of the average workweek' juga di senaraikan dalam report ini. Pengumuman ini dapat membantu untuk melihat secara lebih dekat statistik ekonomi kerana timelines nya, ketepatan dan ia penting sebagai satu indicator bagi aktiviti ekonomi. Oleh sebab itu, ia memainkan peranan yang besar dalam mempengaruhi psikologi financial market dalam sesuatu bulan.

Kepentingan:
Non-farm payroll (NFP) adalah satu ketepatan indikator dalam pertumbuhan ekonomi. Semakin besar kenaikan tahap pekerjaan/employment, semakin pantas jumlah pertumbuhan ekonomi.

Kenaikan 'unemployment rate' berhubung dengan contracting economi dan penolakan interest rate. Sebaliknya, penurunan 'unemployment rate' berhubung dengan perkembangan ekonomi dan potensi kenaikan interest rate. The fear is the wages/penggajian akan meningkat jika 'unemployment rate' terlalu rendah dan pekerja sukar dicari. Ekonomi dipertimbangkan pada full employment jika unemployment adalah di antara 5.5% dan 6.0%.

Jika 'average earning' meningkat dengan mendadak, ia mungkin menjadi satu indikasi untuk potensi inflasi.

Jika 'average workweek' trending higher, ramalan additional employment meningkat.

Sumber:
Bureau of Labor Statistics, U.S. Department of Labor.

Availability:
Jumaat pertama setiap bulan pada 8.30am ET. Data berdasarkan bulan yang sebelumnya.

Kekerapan:
Setiap Bulan

Revision:
Data di revise secara monthly bagi bulan yang sebelumnya. Revision can occasionally be substantial. Terdapat juga revision tahunan yang dilakukan dalam bulan Jun.

Raw Data:
http://stats.bls.gov/news.release/empsit.toc.htm

More Info in English version

Background
The Employment Situation Report, also known as the Labor Report, is an extremely broad-based indicator released by the Bureau of Labor Statistics (BLS). It is made up two separate and equally important surveys. The first, the "establishment survey", is a sampling of more than 400,000 businesses across the country. It is the most comprehensive labor report available, covering about one-third of all non-farm workers nationwide, and presents final statistics including non-farm payrolls, hours worked and hourly earnings. The data sample is both large and deep, with breakouts covering more than 500 industries and hundreds of metropolitan areas.

The second survey, referred to as the "household survey", measures results from more than 60,000 households and produces a figure representing the total number of individuals out of work, and from that the national unemployment rate. The data is compiled by the U.S. Census Bureau with assistance from the Bureau of Labor Statistics. This carries a census-like component, bringing demographic shifts into the mix, which gives the results a different perspective.

Both sets of survey results will show the change from the previous month, and also year-over-year, as trendlines are very important with this often volatile statistic.

What it Means for Investors
The Employment Situation Report is a multi-layered release, with many links from the main page and following the headline discussion items. Because there is so much information provided, it's important to identify the numbers that will be most watched.

The non-farm payrolls figure is very important on Wall Street; it's the benchmark labor statistic out there used to determine the health of the job market because of its large sample size and historical significance in relation to accurately predicting business cycles. Economists have settled on the number of 150,000 jobs as the level that defines economic growth. Gains of roughly 150,000 jobs or more indicate expansion of the labor force, while anything below indicates a weak job market.

The payroll figures from the establishment report are considered a coincident indicator.

Each survey comes up with its own figures for total employed persons using very different tacks. The establishment report is larger, and theoretically more accurate, but excludes private households, the self-employed and the agricultural sector. The household report runs on a smaller sample and may be more subjective, but the inclusion of self-employed workers, for example, can make this figure more valuable in a time when many people are starting their own business (as often happens in the beginning of a new business cycle).

Average weekly hours for the manufacturing sector, as presented in the establishment report, is a leading indicator, and is represented in The Conference Board's U.S. Leading Index.

The unemployment figures from the household report (which is probably the most watched metric of the release after non-farm payrolls) are considered a lagging indicator, as people tend to be out of work when problems in the economy have already manifested themselves in falling economic output (less workers, less GDP). (For more insight, read What are leading lagging and coincident indicators?)

Investors study the labor report to look for trends indisposable income, wage inflation and employment statistics, many studying industries of personal interest to them. Analysts will usually conclude that if payrolls are increasing and wages are rising, that personal consumption stats like retail sales will advance as well, as more money will be in the pockets of consumers.

The Fed watches this report intensely. Alan Greenspan used up good a deal of his allotted minutes during all those years of Senate briefings talking about the labor markets, specifically information contained in the benchmark Labor Report. The unemployment rate alone makes up more than 47% of the lagging index created by the Conference Board and used by the Federal Reserve Board.

In relation to the hourly employment costs, investors can be best served by using the figures here in conjunction with the Employment Cost Index, which comes out about a week after the Labor Report in the four months the ECI is released (ECI is a quarterly report). A key to look for is whether wages are keeping pace with inflation; if not, the real purchasing power of consumers will drop.

The household survey takes into account demographic changes to some degree, whereas the establishment survey only counts the total number of payrolls. In effect, the household survey acts as a mini-census, which is why the same employment report may show an increase in payrolls, while the unemployment rate simultaneously rises, a seeming contradiction in terms.

The number of hours worked data can shed light on where the economy is in the business cycle; companies will often stretch the hours of their current workforce before they decide to hire new workers. This conservative behavior likens to "testing the waters" of the economy before committing to hiring for future growth.




Investors can pore over the industry-specific numbers to get a good feel for labor trends within the industries investors have holdings in - there may be pockets of strength in an overall weak labor report.

Labor statistics can tell us a lot, but they do not necessarily define the economy. Many industries can be well positioned to remain profitable even during tough labor markets - financial services, for instance, can easily lay off workers and keep labor tight until conditions improve, while more capital-intensive industries such as manufacturing (with its higher fixed cost structure) may suffer bigger hits in profitability.

Strengths:

* As one of the most widely watched reports, the Employment Situation Report gets a lot of press and can move the markets.
* Summary analysis provided by the BLS (top link on the site) on the top-level release of an already detail-rich report
* Relates to investors on a personal level; everyone understands having a job or looking for work.
* Services industries are covered here - it is hard to find good indicator coverage of service-based businesses.

Weaknesses

* Summer and other seasonal employment tends to skew the results.
* Only measures whether people are working; it does not take into account whether these are jobs the people wish to have, or whether they are well-suited to workers' skills.
* Volatile; revisions can be quite large, and updates should always be viewed in the most recent report.
* Unemployment and payroll figures can seem to be out of alignment, as they are derived from two different surveys.
* Compensation costs portion is considered inferior to the Employment Cost Index.


The Closing Line
The Employment Situation Report is a very powerful indicator that is able to move the markets dramatically if the results surprise Wall Street. Heavily analyzed, the report is the single best way to understand the state of the labor force at any point in time.

 

[darwisy]

7. Existing Home Sales

Definisi:
Report ini menilai atau mengukur tahap penjualan (selling rate) dari pra-pemilik rumah. Ia dipertimbangkan sebagai satu 'decent indicator' dalam aktiviti sektor perumahan.

Kepentingan:
Ini memberi satu pengukuran bukan sahaja dalam permintaan untuk rumah, tetapi merupakan economic momentum. People have to be financially confident in order to buy a house.

Sumber:
The National Association of Realtord.

Availability:
Pada 25hb setiap bulan 10.00am ET. Data berdasarkan bulan sebelumnya.

Kekerapan:
Setiap Bulan

Revision:
Data di revise setiap bulan bagi bulan sebelumnya. Revision ini menjadi subjek untuk substantial shift. Terdapat juga Annual Revision untuk data 3 tahun sebelumnya. A major benchmark di laporkan setiap 10 tahun.

Raw Data:
http://www.realtor.org/research/research/ehsdata


More Info in English version

Background
The Existing Home Sales Report is a monthly release covering the number of existing homes that were closed during the survey month along with average sales prices by geographic region. The "closed" distinction is important because most closing periods are anywhere from six to eight weeks, so values listed are likely to relate to sales made about two months prior. The data is collected and released by the National Association of Realtors.

There are three important metrics in this report; in addition to the aggregate number of existing homes sold and median selling prices, inventory levels are provided through the "months supply" figure, a number that represents the length of time in months required to burn through all of the existing inventory measured during the period.

Data is provided raw and with seasonal adjustments. This is because weather is a big factor in determining month-to-month demand. As with the Housing Starts Report, the data is also broken down by geographic region (Northeast, Midwest, South and West). Price data will show percentage changes from the year-over-year period and the prior month.

What it Means for Investors
Whereas the Housing Starts release deals with construction levels and is therefore a supply-oriented housing indicator, existing sales are much more about aggregate demand among consumers. While not included in the Conference Board's U.S. Leading Index, existing home sales are considered a leading indicator as well because higher levels are typically reached when the economy is coming out of a recession. The inventory metric also points to how much slack exists in the housing market, as a high reading in the month supply figure means that prices could fall as inventory is worked down to more normalized levels. (For more insight, see What are leading, lagging and coincident indicators? What are they for?)

Besides business cycle considerations, prevailing mortgage rates are the biggest factors to consider when evaluating the sales levels. All else being equal, as rates rise, sales will fall as consumers wait for a more opportune time to purchase a home. If home sales are strong, other consumer industries may see an uptick in sales, such as home improvement retailers and retail mortgage lenders.




Because of the lag between when a sale is made and when closing occurs, the report is not as timely as the Housing Starts Report, but the sample size is larger and less likely to have large revisions. Also, condominium sales are included in this report, but not in the starts report.

Strengths:

* Large sample size
* Together with housing starts provides a clear picture of the strength of the housing market.
* A key leading indicator and predicator of future consumer purchases such as home furnishings and insurance services.
* Shows the level of demand within housing market.
* Released before the New Home Sales Report in the given month
* Includes condo sales, which are not included in the Housing Starts Report

Weaknesses:

* No detailed information on types of homes, just median sales prices.
* Subject to large bouts of seasonality

The Closing Line
The Existing Home Sales Report can be a good leading indicator during times of concern over the housing market in general, and is best used in conjunction with the Housing Starts report

 

[darwisy]

8. Gross Domestic Product (GDP)

Definisi:
GDP mengukur nilai Dollar berdasarkan semua barangan/'goods' dan perkhidmatan/servis yang dihasilkan dalam lingkungan negara US, tanpa mengira dari siapa hakmilik aset itu atau nationality pekerja yang diambil dalam menghasilkan output tersebut. Data diperolehi dalam nominal dan real Dollar. Pelabur/investor sentiasa monitor kadar perkembangan/'growth rate' ini kerana ia pelaras kadar inflasi.

Kepentingan:
Laporan ini mengukur dengan lebih menyeluruh performance of US economy. Pertumbuhan GDP yang sihat adalah antara 2.0% ke 3.5% (bila unemployment rate antara 5.5% ke 6.0%). Ini menggambarkan kekuatan dalam pendapatan korporat, yang mana memberi tanda yang baik untuk pasaran saham. Pertumbuhan GDP yang lebih tinggi dari nilai di atas akan membawa ke pencepatan inflasi, manakala pertumbuhan yang lebih rendah dari nilai di atas mengindikasikan pelemahan ekonomi.

Sumber:
Bureau of Economic Analysis, U.S Department of Commerce.

Availability:
Minggu ketiga atau keempat dalam sesuatu bulan jam 8.30am ET berdasarkan quater yang sebelumnya.

Kekerapan:
Quaterly atau setiap 3 bulan sekali.

Revision:
Revision akan di release semasa bulan kedua dan ketiga dalam quater berdasarkan lebih info yang telah disiapkan.
Benchmark data and new seasonal adjustment factors akn di introduce dalam bulan Julai untuk report quater kedua di release. Revision ini melibatkan sekurangnya nilai data dari 3 tahun. Significance is moderate.

Raw Data:
http://www.bea.gov/national/index.htm#gdp


More Info in English version

Background
The gross domestic product (GDP) is the godfather of the indicator world. As an aggregate measure of total economic production for a country, GDP represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance (exports are added, imports are subtracted).

Presented only quarterly, GDP is most often presented on an annualized percent basis. Most of the individual data sets will also be given in real terms, meaning that the data is adjusted for price changes, and is therefore net of inflation.

The GDP is an extremely comprehensive and detailed report. In fact, reading the GDP report brings us back to many of the indicators covered in earlier tutorial topics, as GDP incorporates many of them: retail sales, personal consumption and wholesale inventories are all used to help calculate the gross domestic product. Various chain-weighted indexes discussed in earlier topics are used to create Real GDP Quantity Indexes with a current base year of 2000. (For further reading, see The Importance Of Inflation And GDP.)

What it Means for Investors
Real GDP is the one indicator that says the most about the health of the economy and the advance release will almost always move markets. It is by far the most followed, discussed and digested indicator out there - useful for economists, analysts, investors and policy makers. The general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall benefit; enough to provide for corporate profit and jobs growth yet moderate enough to not incite undue inflationary concerns. If the economy is just coming out of recession, it is OK for the GDP figure to jump into the 6-8% range briefly, but investors will look for the long-term rate to stay near the 3% level. The general definition of an economic recession is two consecutive quarters of negative GDP growth, which last occurred in the United States in 2001.

While the value of both exports and imports are included in the GDP report, imports are subtracted from total GDP, meaning that all consumer purchases of imported items are not counted as contributions toward GDP. Because the U.S. runs a current account deficit, importing far more than is exported, reported GDP figures have a slight drag on them. A related measure provided in the report, gross national product (GNP), goes one step further by only counting the value of goods and services produced by labor and property within the United States. (To learn more, read Current Account Deficits.)

The "corporate profits" and "inventory" data in the GDP report are a great resource for equity investors, as both categories show total growth during the period; corporate profits data also displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the economy.

The biggest downside of this data is its lack of timeliness; investors only get one update per quarter and revisions can be large enough to significantly change the percentage change in GDP.




The Bureau of Economic Analysis (BEA) even supplies its own analysis of the quarterly data, presenting several useful documents that condense the massive release down to a manageable and readable size. They also provide an annual analysis of data that segments results down to the industry level - a very useful tool for both equity and fixed-income investors who are interested in particular industries related to their holdings.

Strengths:

* GDP is considered the broadest indicator of economic output and growth.
* Real GDP takes inflation into account, allowing for comparisons against other historical time periods.
* The Bureau of Economic Analysis issues its own analysis document with each GDP release, which is a great investor tool for analyzing figures and trends, and reading highlights of the very lengthy full release


Weaknesses:

* Data is not very timely - it is only released quarterly.
* Revisions can change historical figures measurably (the difference between 3% and 3.5% GDP growth is a big one in terms of monetary policy)


The Closing Line
While quarter-to-quarter figures can show some volatility, long-term trends in GDP growth remain the single most conclusive piece of information on the economy as a whole. This indicator is a must-know for investors in all asset classes.

 

[darwisy]

9. Housing Starts & Building Permits

Definisi:
Satu laporan yang mengukur saiz jumlah unit perumahan yang pembinaannya bermula setiap bulan.

Kepentingan:
Ia digunakan untuk memprediksi perubahan dalam Gross Domestic Product (GDP). Pelaburan kediaman mewakili 4% daripada level GDP, disebabkan volatilitinya ia sering mewakili perubahan portion yang lebih tinggi dalam GDP secara relatif untuk waktu masa yang singkat.

Sumber:
The Census Bureau of the Department of Commerce.

Availability:
Sekitar 16hb jam 8.30am ET. Data berdasarkan bulan sebelumnya.

Kekerapan:
Setiap Bulan.

Revision:
Data di revise secara monthly berdasarkan data 2 bulan sebelumnya untuk incorporate lebih informasi yang telah disiapkan. Faktor penyesuaian musim baru diperkenalkan dalam Februari semasa data Januari di relase. Semakan ini memepengaruhi data sekurangnya 3 tahun, tetapi significantnya adalah kecil.

Raw Data:
http://www.census.gov/const/www/newresconstindex.html

More Info in English version

Background
The New Residential Construction Report, known as "housing starts" on Wall Street, is a monthly report issued by the U.S. Census Bureau jointly with the U.S. Department of Housing and Urban Development (HUD). The data is derived from surveys of homebuilders nationwide, and three metrics are provided: housing starts, building permits and housing completions. A housing start is defined as beginning the foundation of the home itself. Building permits are counted as of when they are granted.

Both building permits and housing starts will be shown as a percentage change from the prior month and year-over-year period. In addition, both data sets are divided geographically into four regions: Northeast, Midwest, South and West. This helps to reflect the vast differences in real estate markets in different areas of the country. On the national aggregates, the data will be segmented between single-family and multiple-unit housing, and all information is presented with and without seasonal adjustment.

Housing starts and building permits are both considered leading indicators, and building permit figures are used to compute the Conference Board's U.S. Leading Index. Construction growth usually picks up at the beginning of the business cycle (the Leading Indicator Index is used to identify business cycle patterns in the economy, and is used by the Federal Open Market Committee (FOMC) during policy meetings).

What it Means for Investors
This is not typically a report that shocks the markets, but some analysts will use the housing starts report to help create estimates for other consumer-based indicators; people buying new homes tend to spend money on other consumer goods such as furniture, lawn and garden supplies, and home appliances.




The housing market may show the first signs of stalling after a recent rate hike by the Federal Reserve. This is because rising mortgage rates may be enough to convince homebuilders to slow down on new home starts. For investors looking to evaluate the real estate market, housing starts should be looked at in conjunction with existing home sales, the rental component of the Consumer Price Index and the Housing Price Index (also available from the Census Bureau). (For related reading, see Investing In Real Estate.)

According to the Census Bureau, "it may take four months to establish an underlying trend for building permit authorizations, five months for total starts and six months for total completions", so investors should look more closely at the forming patterns to see through often-volatile month to month results.

Strengths

* Very forward-looking, especially building permits; a good gauge for future real estate supply levels
* Can be used to identify business cycle pivot points
* Sample size covers approximately 95% of all residential construction in the U.S.

Weaknesses

* No differentiation between size and quality of homes being initiated, only the nominal amount
* Only focuses on one area of the economy

The Closing Line
Housing starts is best used as a business cycle indicator and a tool for investors researching the real estate markets.

 

[darwisy]

10. Industrial Production and Capacity Utilization

Definisi:
Indek produksi industri adalah satu indek yang mengukur fizikal output dari perkilangan, perlombongan dan utiliti dalam negeri. 'Capacity utilization rate' mengukur kadar plant dan kapasiti equipment yang digunakan dalam pengeluaran industri ini.

Kepentingan:
Sektor industri mewakili hampir 25% daripada GDP, perubahan dalam GDP tertumpu dalam sektor industri. Oleh sebab itu, perubahan dalam Index Industrial Production memberi informasi yang berguna pada pertumbuhan semasa GDP.

Investor menggunakan 'capacity utilization rate' sebagai satu inflasi indikator. Jika ia di atas nilai 85%, tekanan inflasi akan generate.

Sumber:
Board of Governors of the Federal Reserve System.

Availability:
Sekitar 15hb jam 9.15am ET. Data berdasarkan bulan sebelumnya.

Kekerapan:
Setiap Bulan

Revision:
Data disemak setiap bulan berdasarkan data yang diperolehi 3 bulan sebelumnya untuk mendapatkan informasi lebih lengkap. Faktor penyesuaian musim baru diperkenalkan dalam Desember. Signifance revision adalah moderate.

Raw Data:
http://www.federalreserve.gov/releases/g17/current/default.htm

More Info in English version:

Background
There is a simultaneous release of the Industrial Production and Capacity Utilization reports.

Industrial production figures are based on the monthly raw volume of goods produced by industrial firms such as factories, mines and electric utilities in the United States. Also included in the industrial poduction figures are the businesses of newspaper, periodical and book publishing, traditionally labeled as manufacturing.

The industrial production data is used in conjunction with various industry capacity estimates to calculate capacity utilization ratios for each line of business, with a base year used as a benchmark level of 100% (currently 2002). Aggregate utilization ratios are also provided for areas such as total manufacturing and total high-tech production

The industrial production and related capacity utilization figures are considered coincident indicators, meaning that changes in the levels of these indicators usually reflect similar changes in overall economic activity, and therefore gross domestic product (GDP). The release will show percentage changes on month-to-month and year-over-year levels, shedding light on short-term rates of change and business cycle growth, respectively.

The Federal Reserve watches this figure closely because it understands that inflation shows itself first at the industrial level, when supplies of basic materials get tight - either for their manufacturers or for the corporate clients who buy them. Rises in the cost of commodities and materials will begin to get passed on down the line, ending up with individual consumers of higher-cost finished products.

Also, the industrial sector exhibits the most volatility in terms of nominal output during a business cycle peak to trough. As a result, big changes here have been a historical forecaster of business cycle inflection points.

What it Means for Investors:
Capacity utilization levels, although technically upper bound by 100%, don't approach this value. Utilization levels above 82-85% are seen as "tight" and forecast price increases or supply shortages in the near future. Levels below 80% mean there is some slack in the economy, which could lead to recession worries and employment losses. (For related reading, see Recession: What Does It Mean To Investors?)

As with many indicators, Wall Street will have a perceived "consensus number" before the release - if the difference is larger than expected, stock and bond markets will react in the short term. A higher-than-expected number during a time of economic expansion will cause inflationary fears. If the economy is lagging, an upside surprise in the release could trigger the purchase of equities on the hope of a turnaround. The reverse is also true; lower-than-expected numbers during a time when fears of economic overheating already exist could provide a short-term lift to stock and bond prices.




This report can be used to see what specific areas of industrial production are doing better than others. This can lead investors to an analysis of supply chains and which sectors could be benefiting - or suffering - based on the trends in industrial production.

Strengths:

* Sector breakdown allows for inspection of the relative performance of many lines of business, such as electronics, chemicals and basic metals.
* Press releases will include valuable analysis, which removes overly volatile components to provide a more relevant trendline and puts current numbers into perspective.
* A timely indicator that is released only weeks after data is measured

Weaknesses:

* It only deals with physical goods-producing industries, which make up less than half of economic output. Services, as well as construction production, are not included.
* The capacity numbers are drawn from many different sources, and sometimes pure estimates are used when no information is available
* Historical comparisons are made difficult by heavy transition of component industries, as well as the changing demographics of U.S. output as a whole (manufacturing output is in a constant decline as a % of GNP).

The Closing Line
This report is declining in its level of importance as the years pass; the United States is simply not the huge industrial power it once was. The position of manufacturing in the economic food chain is the highlight of the report, and inflection points in the economy are often confirmed with big changes in this report.