Leading Economic Indicators
Economic indicators, or economic releases, are vital components to consider when making trading decisions. While some releases like Employment data or Retail Sales gives us a snapshot of an economy’s strength or weakness, some are a bit more subtle in their ways and can actually serve as a leading supposition of what’s to come for the main releases. In the spirit of trying to predict how the more important indicators will fare, here are some leading economic indicators that could give you a clue of how they will turn out.
Consumer and Business Surveys
When looking at economic releases, we have to realize that everything is ultimately related to the habits and actions of consumers: Retail Sales is a direct measure of how much consumers purchase; Gross Domestic Product is a direct measure of the capital spent by businesses and consumers; Employment is directly driven by demand to make product that is purchased by consumers; the list goes on. Taking that knowledge in effect means that it is incredibly helpful to have a measure of the optimism or pessimism of consumers, and surveys deliver that to us. It is imperative to be cautious when trying to assess the impact of the surveys because they have a different time reference than the more vital reports.
Survey results are usually reported about a week or two after the surveys are conducted whereas a report like Retail Sales can be reported anywhere from two to six weeks after the month end. Therefore matching the timeframes for the various reports is an absolute necessity.
Purchasing Manager Indices
There are a variety of PMI reports that get released by a few institutions (ISM and Markit chief among them), and all have varying degrees of importance; however, among them all, the “flash,” or “preliminary,” releases are the most telling. The reasoning behind that importance is directly related to their timing. The flash reports are typically released mid-month or slightly after to measure how the month has been going so far according to purchasing and supply executives. The higher above 50 those readings are, the better the month is shaping up for them as they are showing growth. Conversely, if the figure is below 50, then that represents a majority of negative responses and could signal a pullback in that nation’s economy.
Government is slow to release their official figures due to their desire to be accurate and probably a few bureaucratic reasons, but businesses tend to be a little more expedient. For that reason, Vehicle Sales for the previous month are reported almost as soon as the month ends while the government figures are released much later. The theory is that if vehicle sales are strong then, most likely, other forms of consumerism will also be strong.
These are just a couple of the leading economic indicators you can use to help yourself get a leg up on the competition, and the more you watch them, the more comfortable you can become in utilizing their knowledge.