Macroeconomic indicators of fundamental analysis

Main fundamental indicators:

Gross domestic product (GDP)
Unemployment rate
Consumer price index (CPI)
Producer price index (PPI)
Industrial production
Durable goods orders
Retail sales
Business activity index (ISM index)
Balance of payments - (Current account)

From which the largest movement:

Payroll Employment (Nonfarm Payrolls)
Trade balance

Fundamental indices by sectors

I. Gross domestic product (GDP)

1. Gross domestic product (GDP) - Gross domestic product (GDP)
Gross domestic product (GDP) is an indicator of the general economic condition of the country. Represents the value of goods and services produced domestically by both residents and non-residents, calculated at market prices. GDP is published every quarter in the following sequence: Advance - Provisional (Revised) - Final.
Gross domestic product (GDP) - the value of final goods and services produced in the country during the year.
Gross National Product (GNP) is the value of all final goods and services produced during the year by factors of production owned by a given country. It differs from GDP by the share of US GNP that is earned abroad by US citizens and corporations. In addition, the profits of foreign companies in the US are excluded from US GNP but included in GDP.
Nominal GDP is the value of GDP obtained by measuring the total value of final goods and services at current prices. Real GDP - measures the value of final goods and services at the prices of an arbitrarily chosen base year (currently 1987 for the US).
GDP deflator - nominal GDP / real GDP.
GDP = Consumption + Investment + State. Costs + (Export - Import)[/b]
It is a form of the National Income and Product Accounts, which is the official title of the GDP report and an attempt to provide a comprehensive account of final demand. GDP is the main indicator reflecting the state of the national economy. The main form of measurement is the total annual growth rate. Percentage change year-over-year on a quarterly basis, relative to the same coverage period last year:
In detailed official reports, you can also find data on the absolute value of US GDP, expressed in billions of dollars. The report on GDP can be presented in 2 estimates of GDP, which should be equal: 1st is built from the final demand categories, 2- i is based on income estimate:
GDP is often replaced by real GDP:
Real GDP = Final Sales + Inventories, where Inventories = Normal Inventories
Final Sales = Consumption + Producers Durable Equipment + Nonresidential Structurers + Residential Structurers + Federal Government Spendig + State&Local Government Spendig + Export – Import
The report is published at 15:30/16:30 Moscow time, usually on the 20th business day of the month following the reporting period of the Bureau of Economic Analysis of the Department of Commerce for the previous quarter, and the data is released monthly: the first time is preliminary data and then the report is updated.
Relationship with other indicators. GDP is the final indicator of the health of the economy and it makes sense, first of all, to consider indicators that affect GDP. This includes industrial production, personal income and spending, construction costs and other indicators that, as you understand, one way or another, relate to the structural components of GDP. The indicator has a significant impact on stock indices and the monetary policy of the Central Bank and the Government. GDP growth leads to an increase in the exchange rate of the national currency. The impact of GDP data on the exchange rate is as significant as it is blurred over time.
Features of the indicator behavior. Strong growth in real domestic consumption and weak growth in real GDP could mean that imports are taking over most of the demand. This begs the question: are market participants responsible for economic policy satisfied with fluctuations in the foreign exchange rate of the dollar? Growth is determined by social or long-term factors such as demographics, the end of the Cold War, and so on. and cyclical factors such as temporary interruptions in growth due to shocks and other imbalances in the economy.
There is a rather important relationship between the value of unemployment and the growth of real GDP: real GDP must increase by 2.2% in order for unemployment to remain unchanged. If GDP grows from this threshold value by 1%, then the unemployment rate will decrease by 0.1% per quarter, and vice versa.
One should also take into account an important calculated indicator - potential real GDP. This is the maximum possible level of production at which there is no increase in inflationary pressure. At the same time, the unemployment value, which does not accelerate inflation, should be about 5.5%.
The final value of GDP (GDP final)
The sequence of publication of GDP values: GDP advance -> GDP provisional, revised -> GDP final
GDP advance (preliminary value of GDP) is published once a quarter after the 20th of the month.
GDP provisional (revised value of GDP) is an updated value of GDP advance and comes out next month after the publication of GDP advance after the 20th.
GDP final (final value of GDP) - updated value of GDP provisional and final value of GDP. It comes out next month after the publication of GDP provisional on the 20th.

II. Inflation indicators

1. Monetary aggregates 'M' and money supply
Monetary aggregates are types of money and funds that differ from each other in the degree of liquidity. Monetary aggregates are indicators of the structure of the money supply. The composition of monetary aggregates varies by country.
M(x) are indicators of the money supply or money supply in the economy.
M1 takes into account the most liquid resources: cash currency, funds on demand accounts, traveler's checks.
M2 includes M1, term deposits (up to $100,000) and other highly liquid savings.
M3 includes M2 and large term deposits.
In the US, M2 is the main financial and banking indicator of the money supply in circulation, the availability and supply of various types of money in the financial market. It is usually measured as a percentage of the previous value, but there is still such a form of measurement as a share of GDP. In full official reports, data are also given in billions of dollars.
Internal composition:
- M1 - cash money supply;
- Overnight RPs issued by commertional banks (Overnight repurchasing agreements);
- Overnight Eurodollars held by US residents at overseas branches of US banks (Overnight Eurodollars) – overnight loans in EUR/USD;
- Money market mutual funds shares (Money market funds) – money market mutual funds;
- Savings deposits at all depository institutions (Savings deposits) - savings deposits;
- Money market deposit accounts at all depository institutions - money market deposit accounts in all depository institutions;
- Small-denomiation time deposits at all depository institutions (Small time deposits) - short-term deposits in all depository institutions.
The report is published every Thursday/Friday by the US Federal Reserve Board for the previous week.
Relationship with other indicators. It has a strong influence on the price level and liquidity of the financial market. In classical economic theory, it is generally accepted that M2 reflects the supply of currency, which means that with the growth of M2, the exchange rate should fall. However, in practice, everything is different: M2 reflects the activity of the financial market and GDP growth rates. Also, the growth rate of M2 determines the level of rates (the higher the first, the higher the second), and hence the profitability of foreign currency deposits.
Features of the indicator behavior. M2 in the long term is the most accurate indicator of forecasting the trend of inflation and GDP. Experiencing the fastest growth during the recovery phase. The average growth rate of M2 is approximately the same both in the compression phase and in the expansion phase. The higher value of M2 heralds the onset of the recession phase, and the lower value means the end of the recession phase of the economy. M2 is most closely related to economic activity.
This indicator is regulated by the operations of the state treasury on the open market. Its volume largely depends on the volume of auctions held for government domestic loan securities. The decrease in the M2 indicator is carried out by increasing the sales of government debt securities (bonds, bills of exchange, mortgages, etc.), which means the actual withdrawal of money from circulation and storage in accounts at the central bank. The increase in M2 is carried out by the reverse operation - the redemption of state loan papers. The highest indicators precede the onset of the stage of economic contraction, and the lowest values indicate the imminent onset of the recovery stage. In terms of actual growth rates, it experiences the fastest growth during the recovery phase.

2. Consumer price index (CPI)
The Consumer Price Index (CPI) is an indicator that measures the average change in the prices of a fixed basket of goods and services, i.e. price inflation of consumer goods in a certain "basket", and is the main indicator of the level of inflation in the country. The absolute basket is measured as: CPI = 0.38 * (Housing prices2 - Housing prices1 / Housing prices1) + 0.19 * (Food chng.) + 0.08 (Fuel chng.) + 0.07* (auto chng.) + 0.28*others, however more important data on the percentage change of the index in % (CPI2 - CPI1) both for the month and for the year.
Core CPI - used for the so-called "pure" index, which does not include data on energy goods and food products. Main product categories:
- Food, drink, tobacco;
- Clothing, shoes;
- Rents & energy;
- Of which: rents;
- Energy excl. fuel;
- Furniture, household goods;
- Health and body care goods;
- Traffic and news transmission;
- Education, leisure goods;
- Personal equipment, others.
The report is published in the second half of the month following the reporting month by the Bureau of Labor Statistics for the previous month. The Consumer Prices Report is the latest report on the inflationary component in various sectors of the economy, following the data on export and import prices and the Industrial Prices report.
Relationship with other indicators. The consumer price index affects the long-term assessment of purchasing power parity across countries, as well as the Fed's monetary policy to set interest rates. Growth in consumer prices usually leads to a decrease in the level of real demand and retail sales, but this is in the medium term, in the short term, on the contrary, price growth reflects high consumer activity. The indicator is influenced by such indicators as the volume of money supply (aggregate M2) and industrial prices, as well as import prices. The index is analyzed together with the "PPI" (Industrial Price Index). If the economy develops under normal conditions, then the growth of CPI and PPI indicators may lead to an increase in the main interest rates in the country. This, in turn, leads to an increase in the dollar, as the attractiveness of investing in a currency with a higher interest rate increases.
Features of the indicator behavior. The main difference in the composition of CPI is between goods and services. Goods make up about 44.0% of the index and services 56.0%. There are 2 rules for considering the inflationary directions of the two sectors:
1. Goods sector inflation is more volatile than services sector inflation. The main reason is that the goods or commodity sector is highly dependent on food and energy prices. These two components account for approximately half of the commodity component and the price changes in them are especially strong.
2. Inflation in the service sector is less volatile over the business cycle and it lags behind inflation in goods. The highs and lows of growth in prices for services are on average 6 months behind price fluctuations in the goods sector.
When publishing the CPI, the market initially looks at the month-to-month changes in the overall CPI and the changes in the major contributors that give the highest percentage of inflation (energy and food prices). Of less interest is the annual CPI growth figure. Once the market is aware of "net" inflation, as well as energy and food performance, attention is drawn to any unexpected developments in these areas. You need to pay attention to:
- inflationary changes in certain groups of goods, as they cause changes in the financial markets. The more numerous the changes, the more significant they are.
- the behavior of any one group of goods, inflationary changes in which can be the most significant and unexpected. When unforeseen changes come to a sector for which changes are unusual, they are usually less influential than price changes in the "pure inflation" sector.
It should also be taken into account that the individual components are interconnected, for example, energy is not considered in total, because. it is included in many other services and product components, i.e. double counting must be taken into account.
The first thing to keep in mind is that inflation has its own cycle, which lags behind the GDP growth cycle. For this reason, a review of average monthly CPI changes can be misleading, as they are too similar during each phase of the business cycle. This also applies to the net CPI value. Net CPI shows an average and more correct value for the consumer price cycle than the overall CPI. Historical highs and lows for net CPI more often correspond to recession and expansion phases, and in only two out of ten cases they do not correspond to the norm in the recovery phase.

3. Producer price index (PPI)
Determines the change in the price level for the "basket" of goods produced in industry. Until 1978, it was called the "Wholesale price index" (Wholesale price index). This index consists of two parts: the price at the input (semi-finished products, components, etc.) and the price at the output of production (finished products). The exit price includes the cost of labor and gives an idea of the inflation associated with changes in the cost of labor. The industrial price index is considered more reliable if it does not take into account the food and energy industries. When calculating the index, prices for imported goods and services are not taken into account. It has a significant impact on the market. In the context of the expectation of an increase in the main interest rates, an increase in its value leads to an increase in the dollar. Published every month, usually the week following the release of Nonfarm payrolls.
PPI (Producer Price Index) - producer price index - an indicator of changes in wholesale prices of producers of goods and services. The weights of various categories of goods in PPI are as follows: consumer goods - 40%; food - 26%; industrial equipment - 25%; energy carriers - 9%. A distinction is made between regular PPI and core PPI (excluding food and energy components). Rising prices for industrial goods usually outstrip the growth in consumer prices (CPI), so this index is considered as a leading indicator of inflation.

4. Average hourly earnings
Average hourly earnings are an important indicator of labor cost inflation and the current state of the labor market - something the Fed is paying considerable attention to when considering changing interest rates. It is published once a month, one week after the reporting month, on the first Friday of each month at 15:30/16:30 Moscow time, simultaneously with the Nonfarm payrolls indicator. The source of the indicator is the Bureau of Labor Statistics of the US Department of Labor.
Related indicators. Employment Cost Index (ECI) Payroll Jobs Data, Unemployment Rate.
Impact on the financial market. The larger-than-expected increase in the average hourly wage is considered to be the cause of inflation and drives up interest rates. From a bond market perspective, an increase in average hourly wages as a leading indicator of labor cost inflation is inflationary for the entire economy if it exceeds labor productivity growth. High growth in average hourly wages makes it more likely that the Fed will increase the federal funds rate, which is also negative for bond prices.
Stock. Higher wage inflation weighs heavily on stock market prices as rising wages reduce profits, increase long-term interest rates, and force the Fed to raise the federal funds rate to counter inflation.
Forex. On the one hand, the rapid growth of wages leads to an increase in inflation (depreciation of the national currency) and a decrease in the competitiveness of the country's products. On the other hand, this leads to an increase in nominal interest rates and possibly real interest rates; such an increase in interest rates will lead to a strengthening of the national currency on Forex.
Influence on the markets. Strong, as the indicator is an early signal of wage growth.
Indicator Analysis. High growth in average hourly wages (wage inflation) will lead to higher inflation if wage growth exceeds labor productivity growth. The Employment Cost Index associated with this indicator is usually considered in detail by the Fed. Compared to the Employment Cost Index, which is only published quarterly, the advantage of Average hourly earnings is that it is published on a monthly basis and is an earlier indicator of previous months' wage growth. However, when compared to the Employment Cost Index, the average hourly wage has several drawbacks. First, the Employment Cost Index is a broader measure of labor costs and includes wages as well as some other income (pensions, paid holidays, paid health insurance). Second, the Employment Cost Index is adjusted for the composition of the workforce: average hourly wages can increase if many workers are employed in more skilled jobs that pay higher hourly wages. The first effect, due to the change in the distribution of labor between different jobs, is not inflationary; however, the distribution leads to an increase in the average hourly wage, and the Employment Cost Index remains unchanged. Further, the average hourly wage, unlike the Employment Cost Index, may increase due to temporary wage increases that do not cause permanent wage increases. For example, an increase in wages for overtime, which usually pays a higher hourly wage, leads to an increase in the average hourly wage, but not to an increase in the Employment Cost Index.
For all of these reasons, the Fed pays more attention to the quarterly Employment Cost Index report than the monthly average hourly wage report when analyzing whether wage inflation and labor cost inflation are rising or not.

5. Average weekly earnings (Real earnings - Real average weekly earnings)
The index is calculated taking into account inflation (cleared from the influence of inflation). To eliminate the influence of inflation, the calculation is made in relation to the base year, for which 1982 is taken. Expressed as an absolute value and as an index relative to the previous review period. It can serve as an indicator of the development of inflationary processes associated with an increase in the cost of labor. Has a limited impact on the market. Given the expectation of an increase in key interest rates, an increase in its value may lead to an increase in the dollar. It is published, as a rule, in the middle of each month.

III. Economic growth indicators

A. Employment market

1. Unemployment rate
Shows what is the ratio of the number of unemployed and the total number of able-bodied population, expressed as a percentage. The publication takes place along with the Nonfarm payrolls (NFP) indicator. The indicator reflects the number of unemployed in relation to the total labor force.
Unemployment - the level of able-bodied 18-year-olds who are unemployed and in search of vacancies in a particular period, that is, the unemployment rate should be considered as the proportion of the unemployed in the labor force as a whole.
The natural rate of unemployment is between 3 and 5%. Unemployment is seen as a significant indicator in terms of confirming trends in production and the state of the business cycle in general. Calculated according to the formula:
Unemployment Rate = 100 x (LF - E) / LF,
where LF is labor resources, or labor force; E is the employed labor force.
The publication of the report is scheduled for the first Friday of the month following the reporting period. Prepared by the Bureau of Labor Statistics.
How unemployment is related to other indicators
The unemployment rate directly determines the level of income of citizens, and hence the level of consumption. But if unemployment falls and employment rises, businessmen will incur additional costs for staff salaries. In the case of an increase in wages at a critical pace, a decrease in the level of employment is noted, unemployment is growing.
As a rule, the unemployment rate is analyzed in relation to figures reflecting the value of Nonfarm payrolls. Thus, an increase in the value of the NFP indicator with an increase in the unemployment rate indicates an increase in unemployment in the agricultural sectors of the economy, etc. In the context of the expectation of an increase in key interest rates, a decrease in its value provokes an increase in the USD exchange rate.
Nuances of indicator behavior
Certain regularities link the unemployment rate with the growth rate of the gross domestic product. For example, real GDP growth of up to 2.3% is the threshold that must be exceeded in order to significantly affect the unemployment rate. Each percentage of GDP growth causes a seven-hundredths of a percent reduction in unemployment in the current quarter.
If quarterly real GDP growth averages 3% in the current year, the unemployment rate will fall by 0.2% by the end of the period. A 1% reduction in the unemployment rate corresponds to a 3% increase in the gross national product.
The value of unemployment is a leading economic indicator at the peaks of the business cycle, but lagging at its troughs. The indicator is influenced by additional factors:
migration and demographic factors;
minimum wage;
differences in economic growth rates across sectors;
job loss insurance;
the influence of trade unions;
tax level.

2. Payroll Employment (Payroll Jobs, Nonfarm Payrolls)
Payroll is a payroll according to which employees are paid wages.
Nonfarm Payrolls - payrolls, according to which non-agricultural sector workers are paid wages. Payrolls - indicators calculated by the Bureau of Labor Statistics, provided monthly in the report of the National Current Employment Statistics (National Current Employment Statistics) and reflecting the dynamics of employment in the US economy.
The indicator is based on data from two surveys:
1. First survey - questionnaires collected by government agencies from 400,000 non-farm enterprises (approximately 40% of US jobs). The data cover the following main industries: goods manufacturing, construction, extractive industries, services, transportation, public utilities and utilities, wholesale and retail trade, finance, insurance, real estate industry, government services. Businesses with more than 250 jobs and a representative sample of businesses with fewer than 250 jobs are surveyed. The surveyed businesses provide data from their payrolls, which are used for accounting and tax purposes.
2. The second survey is part of the Current Population Survey, which has about 50,000 households.
All data are seasonally adjusted (Seasonally Adjusted), as some industries show significant seasonal fluctuations.
Related indicators: average working week, average hourly wage, unemployment rate.
Source: Department of Labor.
Release frequency: 1 month (first Friday of each month).
Likely impact on financial markets:
Interest rates: A larger-than-expected monthly increase in the indicator or an upward trend is understood by the bond market as an inflationary factor causing interest rates to rise and bond prices to fall. Therefore, the bond market considers a weak report favorable and vice versa.
Stock market: impact uncertain. On the one hand, a larger-than-expected increase in the indicator indicates high economic growth rates and higher potential profits, which is good for the stock market. On the other hand, the indicator may increase the expected inflation and lead to higher interest rates, which is bad for the stock market. The first effect dominates in the recession phase of the business cycle and in the early stages of the economic recovery, the second effect dominates when the economy is close to the top of the business cycle.
Forex Market: Greater-than-expected growth in Payroll Jobs, all other things being equal, causes the growth of the national currency, as it indicates a general strengthening of the economy, strengthening potential domestic demand and leads to an increase in interest rates in the country.
Impact on the Forex market: quite strong, since Payroll Jobs is both an important indicator in its own right and one of the earliest signals of the economic activity of the previous month. The Fed usually keeps a close eye on the employment report, and changes in monetary policy largely depend on it.
Indicator analysis:
The Government Employment Report is one of the most important monthly reports. Of course, such data as, for example, GDP are more important, but they are published only quarterly. The importance of the Payroll stems from the fact that every month this report is the first to signal the employment conditions of the previous month, and sets the tone for the following month. This report also includes information on employment, average work week, average hourly wage and unemployment rate. Seasonally Adjusted Nonfarm Payrolls is one of the most important numbers in the employment report. The agricultural sector is not used because it is subject to strong seasonal fluctuations.
Payroll data is used to predict other economic indicators. For example, there is a strong correlation between construction payrolls and the number of new home construction starts, manufacturing and industrial activity, total payroll data, and personal income. The data is also used to refine GDP estimates. Payrolls are used to predict the possibility or rate of change in US Fed funds rates. Although payroll data is important, it is often and heavily revised.

3. Initial Jobless Claims
Initial Jobless Claims - Weekly value showing the number of initial Jobless Claims, i.e. showing the level of employment and unemployment in the United States. The number of applications for unemployment benefits. Shows the weekly change in the number of applications for unemployment benefits. It is desirable that Jobless Claims strive for 300 thousand, but do not exceed 325 thousand. Initial jobless claims, consistently above 350,000, are seen as evidence of a significant weakening of conditions in the US labor market. If the four-week moving average of initial jobless claims exceeds 375,000, then, according to the calculations, for example, economists at Bear Stearns, this signals a possible recession.

4. Average workweek
The indicator shows the average duration of the working week during the month. Used for long-term analysis of the state of employment in the country. It is a “good” indicator of the state of the labor market at different stages of the economic cycle. The increase in the length of the work week at the beginning of the economic cycle indicates that employers are preparing to hire new employees. While the growth of this indicator at a later stage of the cycle usually reflects the difficulties of employers in finding employees for existing positions. The indicator is published, as a rule, on the first Friday of each month, simultaneously with the Nonfarm payrolls indicator.

5. Service payroll checks (ADP)
Automated Data Processing Inc. is the world's largest payroll operator. The ADP report is based on wage data and indicates a change in employment in the private sector of the economy, excluding the agricultural sector. Data from the ADP report is used as a forecast for Nonfarm Payrolls.

B. Business climate

1. Business activity index (ISM index)
ISM index (Institute of Supply Management' index) - Business activity index - an indicator of the supply and demand research institute. An ISM index value greater than 50 is usually considered as an indicator of an increase in manufacturing activity, and less than 50, respectively, a decline. As a rule, when the ISM value approaches 60, investors begin to worry about the possible overheating of the economy, rising inflation and related measures (rate hikes) from the Federal Reserve Bank. When it falls to 40, talk of a recession begins.

2. PMI business activity index (PMI index)
National Association of Purchasing Managers (NAPM) or PMI index - PMI business activity index. The report is the results of a survey of purchasing managers in the industry (for services that occupy about 40% of US GDP, a separate Business Activity Index of the National Association of Service Managers - PMI services index is calculated) and aims to study the impact of the economy on the formation of price space and provides quality information about business trends. In fact, this is an index of optimism for the top and middle management of the economy. This index is used to measure changes in new manufacturing orders, industrial output, employment, and inventory and supplier speed.
The indicator is measured in the range from 0 to 100% and is calculated by the formula:
PMI = 0.30*(New Orders) + 0.25*(Production) + 0.20*(Employment) + 0.15*(Supplier Deliveries) + 0.10*(Inventories).
Formal responses to the questions of survey participants are limited to ratings “higher” (more), “lower” (less) or “no change” compared to the previous month, the respondent can also add their own comments. Each component of the report is compiled into a diffusion index, which is calculated as the sum of simple percentage changes in the above and below values, plus half the percentage of the same or no change responses. The diffuse index can fluctuate between 0 and 100% with different characteristics of the ranges: a value of 50% means no change, above 50% an improvement, and below 50% a decrease. The bottom line business sentiment is a composite diffuse index called the Purchasing Managers' Index (PMI) based on a weighted average of new orders, products, employment, lead times and inventories.
The following items are included in the questionnaire:
Production - Production;
New orders (New orders from customers) - New orders;
New export orders - New export orders;
Order backlogs - Backlog of Orders;
Commodity Prices - Commodity prices;
Inventories of purchased materials - Stocks of purchased materials;
Imports (New import orders) - New import orders;
Employment - Employment;
Vendor Deliveries (Delivery time) – Delivery time;
Items in short supply (Supplier) - short-term supply goods.
The report is usually published on the 1st business day of the month following the reporting month by the National Association of Purchasing Managers for the preceding month.
Interrelation with other indicators and features of the indicator behavior. According to the dynamics of the NAPM index, they usually predict changes in industrial production, orders, industrial prices, employment, and most importantly, GDP dynamics for six months ahead. If the NAPM index is above 50%, the GDP growth rate will increase, if the NAPM index is below 50%, then the GDP growth rates will fall, and when the NAPM index reaches 44%, negative GDP growth should be expected. The indicator is very important for the analysis of the economy and financial markets. Data analysis is carried out at the following 5 levels:
1. Prospects for a reversal of the business cycle.
2. General prospects for economic growth.
3. Prospects for inflation.
4. PMI/NAPM index components.
5. Relationship between PMI, its components and other indicators calculated by official government bodies.
Analysis of PMI as an indicator of predicting the state of the business cycle.
There are various critical PMI thresholds that are of great importance to the economy:
- the highest point in the cycle;
- 50%;
- 44%;
is the bottom of the cycle.
PMI is a reasonably reliable indicator for predicting business cycle turning points. Over the past 40 years, PMI highs have consistently heralded the business cycle reaching a seven-month average average. PMI lows are reached three months before the business cycle low. The fifty percent threshold is the point at which equal proportions of survey respondents say that business conditions are better or worse. The 50% point is significant for financial markets as a psychological level, as well as a signal of a potential weakening of the economy. On average, a PMI drop below 50% occurs two months before business cycle downturns. When PMI falls below 44%, it means the onset of a recession in the economy and negative GDP growth. During the down phase, the PMI typically falls to an average of 34.8%. If the PMI does not drop when it falls below 44%, then this usually means that the economy will recover soon.
Using PMI to predict Real GDP and Industrial Production. On average, PMI is two months ahead of change in Industrial Production. In 1992, their correlation was about 75%, while PMI must exceed 45.9% for a linear increase in industrial output. A PMI reading of 50% typically corresponds to a 2.1% yoy growth in industrial production. The estimates of the quarterly ratio of GDP growth rates and PMI values suggest that if PMI = 43.8%, then this corresponds to zero GDP growth, i.e. GDP forcast - GDP previews = 0, and if PMI = 50%, then Real GDP growth = 1.9%.
Price distribution index. Prices diffusion index - the diffusion index is a leading indicator of inflation. The analysis showed that the Prices diffusion index predicts up to 59% fluctuations in PPI, including prices for semi-finished products and raw materials in the next month.
Forecasting the state of the business cycle from the components of the NAPM report. NAPM provides a fairly complete picture of the state of production. For example, at the exit from the recession phase, one should expect that the growth of the new orders component should predetermine the growth of production. The improvement of the economy will cause employment growth and growth of inventories. With some delay, prices will begin to reflect the strengthening of the economy. New orders (new orders NAPM index) are also a leading indicator of weakness in the economy. Also, a downturn in the business cycle is projected for the components of employment and inventories.
Relationship with other indexes. For example, the NAPM employment diffusion index is very similar to the Bureau of Labor Statistics manufacturing employment diffusion index.

3. Chicago Managers Association Business Activity Index (Chicago PMI)
Represents the results of a survey of purchasing managers in the Chicago industry. This index affects the state of production orders, prices for manufactured products and inventory in warehouses. Figures below "45-50" are an indicator of a slowdown in economic development. It is being watched closely as it is released shortly before the release of the National Association of Managers (NAPM) business activity index. This index has a significant impact on the market, as it can give an idea of how the national business activity indicator (NAPM) will turn out. An increase in the index value leads to an increase in the dollar exchange rate. Its value is published on the last business day of each month.

4. Philadelphia Reserve Bank Business Activity Index (Philadelphia Fed index)
Results of a survey of manufacturers in Philadelphia on their attitude to the current economic situation. Values below "0" are an indicator of a slowdown in economic development. The data is published on the third Thursday of every month. Has a limited impact on the market. The Philadelphia Fed Index is being watched closely as the index is released ahead of the NAPM index and can provide an indication of how the PMI will turn out at the national level. An increase in the value of this index leads to an increase in the dollar.

5. University of Michigan Consumer Sentiment Index
This index represents the results of a survey of consumers on the subject of confidence in the current economic situation. The survey is conducted by employees of the University of Michigan USA. The report is published twice a month: in the second week (usually on Friday) around the 15th of the reporting month (provisional), and two weeks later (final). This indicator is nothing more than a reflection of the desire of consumers to spend their money. Has a limited impact on the market. An increase in the index value leads to an increase in the dollar exchange rate.

Indices in other countries
ISM. US business activity index. Calculated by the Institute for Supply Management Chartered Institute of Purchasing and Supply.
PMI. Business activity index for the Eurozone.
CIPS. UK business activity index.
TANKAN. Japanese business activity index.
In the US, you should also pay attention to such indices as: Atlanta FED index, Richmond FED index, Philadelphia FED index, Chicago PMI index, Michigan Sentiment index.
In Germany, you should also pay attention to such indices as: IFO, ZEW.

С. Real estate market

1. Number of sold houses built earlier (Existing home sales)
Existing home sales - the number of homes sold in the secondary real estate market for the year. Can give an indication of consumer optimism (buyer confidence) and their ability to buy high-value items. These data, due to the peculiarities of the real estate market, are subject to seasonal fluctuations. The construction process is directly related to the state of income of the population. Therefore, the increase in construction volumes characterizes the improvement of its well-being and the healthy development of the economy. Has a limited impact on the market. The growth of its value has a positive impact on the exchange rate of the national currency. Its value is published every month after the 20th.

2. Construction spending
Construction spending - Construction costs - are divided into the costs of building residential buildings in the city, outside the urban area, as well as the costs of the population for new construction. The indicator is very sensitive to changes in interest rates and seasonal fluctuations.

3. New home sales
New home sales - Shows the number of single-family homes sold or listed for sale per year. Subject to seasonal fluctuations.
The data shows the number of single-family homes sold or listed for sale. This number tends to rise when the real estate mortgage rate rises, which is linked to the main interest rates in the country. These data, due to the peculiarities of the real estate market, are subject to seasonal fluctuations. Therefore, when analyzing the “New home sales” indicator, “moving averages” (moving average) are used. Has a limited impact on the market. The growth of its value has a positive effect on the exchange rate of the national currency. The value of "New home sales" is published on the first days of each month,

4. Building permits
Building permits - Building permits - the number of orders to start excavation, the index is subject to seasonal fluctuations.

Housing Starts and Building permits
Housing Starts and Building permits - New home construction and building permits is the sum total of the number of new construction properties that have appeared during the reporting month and building permits have been issued. It is very sensitive to changes in interest rates in the country and subject to seasonal fluctuations.

D. Industrial production

1. Industrial production
The full name of the indicator is the Industrial Production Index. The indicator measures output in industry, extractive industries and consumer industries, reflecting the growth of industrial production and utilities in the country, excluding the construction sector. It is one of the main indicators reflecting the state of the national economy. 39% of the index is based on physical output data, the rest of the index is based on hours worked and energy consumption data. It is measured indexically in% - the full value and the change in the index for the month. You should know that Industrial Production is production without construction, or otherwise “pure production”. The overall index, taking into account the products of the construction sector, is given in the same report and is called the Manufacturing Production Index. Its lesser mention is due to the high volatility of construction data, which reduces the correctness of assessments of the situation in production based on this index.
The report is divided into industry and market groups:
The report is usually published on the 15th day of the month following the reporting period by the analytical department of the Federal Reserve System (Federal Reserve Board), for the previous month.
Relationship with other indicators. The indicator depends on the level of capacity utilization (Capacity Utilization), industrial orders in the previous month (Durable Goods Orders, Factory Orders), for a longer period, business activity indices are used to predict the level of production, in particular, the index of optimism of industrial sector managers (NAPM Index) . Growth in production, as a rule, leads to an increase in demand for labor and, accordingly, a fall in unemployment (Unemployment rate), and the growth of the industrial production index has a positive effect on company incomes, GDP, and stock indices. The indicator has a significant impact on the market. The growth of this indicator leads to an increase in the exchange rate of the national currency.
Features of the indicator behavior. Fluctuations in the index of industrial production are markedly correlated with fluctuations in the business cycle with strong gains during the recovery period. During a recession, industrial production declines by an average of 0.8%/m, with a normal range of -1.3 to 0.3%. During the recovery phase, production tends to increase by 0.9% per month and then the growth rate is set at 0.4% during the expansion phase. Since employment hours directly account for about one-third of the industrial production index and indirectly reflect monthly business conditions, using the employment report data can help predict the industrial production index.

E. The volume of industrial orders

1. Durable goods orders
The Durable Goods Orders Report, part of a series of manufacturing and trade reports that is "embedded" into other more comprehensive manufacturing and trade sector data. New orders are defined as the intention to purchase goods now or in the future, they must also be supported by legal documents (ie, signed purchase agreements, letters of intent or deposit, etc.). Durable goods are goods with a useful life of more than three years. These include: cars, furniture, etc. In order to highlight the variability inherent in military and transport orders, indicators are distinguished from this indicator that do not take into account orders for the defense industry (Durable goods orders excluding defense) and transport orders (Durable goods orders excluding transportation). The indicator is very changeable (volatile), usually measured in %. The advanced report has data on the absolute volume of orders in millions of dollars.
Indicator structure:
Durable Goods New Orders = Shipments (Sales) + change in Durable Goods Unfilled Orders
Total Durable Goods Orders = Consumer Goods and Materials Orders (Consumer Goods and Materials) + Capital Goods Orders (Means of Production)
Nondefence Capital Goods Orders (Means of production not for the defense complex)
-Nondefense capital goods orders less aircraft and parts
Defense Capital Goods Orders - Means of production for the defense complex
Nondefense capital goods orders less aircraft and parts - Orders for capital goods less aircraft and parts make up about 20% of all Total Durable Goods Orders. These include:
- nondefense portions of ordnance - non-defense portions of ordnance;
- steam, gas, and hydraulic turbines - steam, gas and hydraulic turbines;
- internal combustion engines - internal combustion engines;
- construction, mining and material handling equipment - structures, coal and processing equipment;
- metalworking machinery - metalworking equipment;
- special industry machinery - special industrial equipment;
- electrical transmission and distribution equipment - electricity transmission and distribution equipment;
- electrical industrial apparatus - electrical industrial appliances;
- communications equipment - communications equipment;
- railroad equipment - railway equipment;
- search and navigation equipment - search and navigation equipment.
The previous month's report is released in the second half of the month, usually on the 18th business day of the month following the reporting period by The Census Bureau of the Department of Commerce.
Relationship with other indicators. The indicator has a decisive influence on the overall report on industrial orders. The indicator itself is mainly predicted by the index of business optimism in the industry NAPM and by the component of orders for durable goods in it.
Features of the indicator behavior. This indicator is important for the market, as it gives an idea of the confidence of consumers of these products in the current economic situation. Since durable goods are quite expensive, the increase in the number of orders for them shows the willingness of consumers to spend their money on them. Thus, the growth of this indicator is a positive factor for the development of the economy and leads to an increase in the national currency. Volatile components: defense and transport orders, which can greatly affect the variability of the values of the remaining components. The defense order accounted for about 5-6% of all orders in 1992, but influenced 50% of all changes. Similarly, orders in the transportation and components sector, which accounted for about 25% of all orders, could dampen fluctuations in orders from aviation, which holds a large share. In order to understand the main direction of production movement, it is necessary to focus on the following indicators: total orders of durable goods without a defense order and total orders without transportation.
The indicator of new orders for durable goods is strictly in line with fluctuations in the business cycle, with the largest increase in the recovery phase. On average, the rate increases by 1.5% per month during the recovery phase and then moderately at the level of 0.5-0.7% during the expansion phase. It should be remembered that the indicator does not take into account price increases, i.e. Orientation when calculating orders is based on the nominal value of products.
The Durable Goods report is essential for calculating the composite index of leading economic indicators, it provides three of the 11 components:
- new orders for means of production in the non-defense sector;
- new orders for consumer goods;
- outstanding orders.
Therefore, it is necessary to adjust the leading indicator forecast after the release of the Durable Goods Orders report.

2. Production orders (Factory orders, manufacturing orders)
Manufacturing orders, or production orders, reflect the actual need of industries for goods, both non-durable and durable. The indicator indicates how much production needs the supply of a particular product.
An increase in the indicator indicates potential production growth, a decrease indicates stagnation. Factory orders are calculated as a percentage and are confirmed by letters of intent, sales contracts and other documentation.
The level of current production orders affects the volume of industrial production, as well as stock indices for real production sectors.

F. Consumer demand and trade

1. Retail sales
The index shows the change in retail sales. The main, although not the only and not exhaustive indicator of consumer spending for the period of the month under review (the index of personal consumption spending is a more complete and accurate report). It is used as a component in the calculation of GDP. It is measured, like most economic indicators, in % - a change from the previous period. There is also data on the absolute volume of retail sales in billions of dollars. stores and businesses that report their sales as retail rather than end-user. Thus, regardless of the end user (including manufacturers of other products or even wholesale transactions), a sale that is registered as a retail sale is included in the report. On the other hand, it cannot be said that the data are very different from the true ones, since there is a procedure for classifying sales as retail sales - retail sales are defined as "a business (business) that sells goods primarily for individual or family use."
The data includes sales for cash and credit, excluding discounts and refunds. Excise taxes are included if paid by the manufacturer or wholesaler and reached the consumer, but excluded if paid directly by the buyer and transferred to the local, state or federal budget. This also applies to sales tax.
About 2/3 of the total indicator is Nondurable Goods, in which about 20% belongs to Food Stores (food), in Durable Goods the main share is occupied by Auto Dealers (auto sales) - up to 20%. Those. the indicator is divided into: "sales of cars" and "sales of everything else". Since the number of cars sold is a very variable quantity, the part of the indicator that does not take into account “car sales” carries the most correct information.
The report is published in the middle of the month following the reporting period by the Bureau of Economic Analysis of the Department of Commerce for the previous month.
Relationship with other indicators. An important influence on the indicator of retail sales is exerted by the income of the population for the previous period, namely the indicator of the volume of personal income - Personal Income, data on auto sales - Car Sales, as well as the level of "consumer optimism" - Consumer Confidence Index. The opposite negative impact on retail sales has a rising price level - CPI and rising unemployment - Unemployment Rate. As already noted, the indicator of retail sales has a positive impact on GDP, and its growth serves as a signal for industrialists to increase production and replenish stocks. Indirectly, sales volume affects stock indices, as well as price growth. Usually has a positive moderate impact on the currency.
Features of the indicator behavior. From the point of view of the business cycle, the indicator of retail sales is characterized as a "coincident indicator" (coinciding indicator), i.e. its fluctuations coincide with those of the business cycle. However, cyclic fluctuations are insignificant; consumer purchases can often continue to rise even after a recession has begun. On an annual basis, retail sales are never rejected. The minimum annual increase (0.9%) was in 1991. In addition, monthly retail sales naturally increase even during recessions. The best way to link retail sales and the business cycle is to calculate Retail Sales growth on a monthly basis. Most months will show an increase, but during the downturn they will become smaller and declines in Retail Sales will become more frequent.

2. Personal Spending
The index is calculated taking into account inflation (cleared from the influence of inflation). To eliminate the influence of inflation, the calculation is made in relation to the base year, for which 1982 is taken. Expressed as an absolute value and as an index relative to the previous review period. It can serve as an indicator of the development of inflationary processes associated with an increase in the cost of labor. Has a limited impact on the market. Given the expectation of an increase in key interest rates, an increase in its value may lead to an increase in the dollar. Published, as a rule, in the middle of each month at 15:30/16:30 Moscow time

3. Consumer Confidence Index
Consumer Confidence Index - Consumer Confidence Index - surveys of representatives of 5,000 randomly selected families in order to study their assessment of the current situation (the state of the labor market, business conditions, consumers' own assessment of the prospects for increasing their earnings).
In Factor Analysis, it is convenient to use a variety of statistics calendars that contain detailed information on various macroeconomic indicators, the degree of their influence on the market, forecast and actual values, etc.

4. Personal income (Personal Income)
Personal income - the total income of citizens from all sources, including wages, rental income, government subsidies, dividend income, etc.

III. Trade and federal balances. Capital inflow

1. Trade balance
The indicator can be characterized as the ratio of the sum of the prices of goods exported from the country and the sum of the prices of goods imported into its territory. That is, it is the difference between the volume of exports and imports. If the sum of prices of exported goods exceeds the sum of prices of imported goods, then the trade balance is active (positive balance), otherwise it is passive (negative balance).
A positive balance, or a decrease in the size of the negative balance, is a favorable factor for the growth of the national currency. significant impact on the market.
Merchandise Trade Deficit (Balance) - trade balance, or balance of trade in goods. For the United States, this meant a deficit for many years, hence the abbreviation Trade Deficit.
The Merchandise Trade Report describes the monthly export/import of goods in America. This is an extremely important indicator that characterizes the net movement of goods, monetary policy and foreign trade activity of the country. The indicator is calculated as the difference between exports and imports (in billions of dollars):
Merchandise Trade Deficit (USD bln) = Export - Import
Critical points
The content of the indicator
Trade Balance is a complex indicator, the analysis is carried out in several directions (for both exports and imports):
Food (food products);
Consumer goods (consumer goods);
Autos (auto);
Raw materials & industrial supplies (raw materials and industrial supplies);
Capital goods (means of production);
Other merchandise (other goods).
In the official reporting documentation and subsequent analysis, particularly important points can be highlighted, such as:
Total Deficit (general deficit);
Ex Autos (car export);
Ex Petroleum (fuel export).
The report for the month before last is released monthly in the second half of the period (usually on Thursday). It is compiled by the US Department of Commerce Bureau of the Census.
How is it related to other indicators
One of the few indicators that directly, rather than indirectly, affect the exchange rate. Reflects the movement of funds for the provided goods and services between states.
Paradoxically, the reaction of the exchange rate to this report is minimal for technical and structural reasons. To be specific, the report is noticeably late in time when the real movement of values takes place. In addition, the movement of capital due to trade relations is many times less than the movement of capital, which is associated with the work of credit and stock markets, and the cycles of these two flows are usually asynchronous.
As the trade deficit grows, the demand for buying foreign currencies increases, and the local currency tends to fall. The trade balance is affected by indicators of domestic demand, as they determine the dynamics of imports and directly the exchange rate, which corrects the nominal value of import receipts in local money.
How does the indicator behave?
For foreign exchange markets, the overall balance is a key indicator. First, exports are analyzed, since they directly affect the value of growth in the country's economy. Import characterizes the demand for goods in the United States. The increase in imports reflects the formation of stocks, which may indicate a likely subsequent slow increase in sales. Then specific product groups are analyzed.
There are a number of special items of exports and imports that can significantly affect the trade balance: oil for imports (especially the increase in the price of a barrel), aviation for exports, etc. Depending on the product category, the growing deficit, which is formed by a slight drop in exports, can swing fixed income markets one way or the other.
Compared to other sectors of the US economy, in this case there is no consistent relationship between the balance of trade and the phases of the business cycle. During downturns in net exports, other indicators can get better or worse.
This is due to the difference in the timing of business cycles in the US and abroad, and because of the length of time the local and foreign cycles change. Exports showed consistent gains during the expansion phase of US business cycles, but this relationship is again broken during recessions and recoveries.

Import prices
This index shows how the prices of imported goods have changed during the month. Import prices are an indicator of inflation. Since the calculation of the consumer price index (CPI) includes prices for imported goods / services, this value makes it clear what contribution import prices make to the overall picture of changes in retail prices for the consumer basket. The impact of the indicator on the financial market is limited. When investors expect key interest rates to rise, rising index values push the USD up. The publication occurs monthly, closer to the 10th. Along with it comes the indicator "Export prices".

3. Export prices
The EPI index shows how prices for goods/services produced in the United States and sold abroad have changed in the reporting month compared to the previous one. Allows you to determine whether the change in the total export indicator is associated with an increase in the volume of sales of goods to other countries or only with an increase in prices for exported goods.
Export accounts for about 1/10 of the country's GDP. Fluctuations in the index serve as a moderate factor for the stability of the national currency. The values of this macroeconomic indicator above the forecast are considered as a positive trend for the US dollar, below the forecast - as a negative factor.
Export prices act as a deflator for compiling government trade statistics.
How the index is formed
Price data is mainly collected through a survey of US exporters. The composition of the basket for calculating the index is subject to revision by a quarter of every six months. This takes into account the entry into the market of new goods and the decrease in the relative share of those already participating in the trade turnover. Each position in the calculation of Export prices has a certain weight.
All goods are included in the index calculation, except military goods, masterpieces of art, used items (including after restoration and repair), charitable donations, railway equipment and certain types of exports (custom-made capital equipment).
The calculation includes services such as passenger and cargo transportation by air.
How to use in fundamental analysis?
Since the index does not provide for seasonal adjustment, analysts consider the dynamics of the indicator as a percentage over several months for a correct interpretation.
The impact of the indicator on the USD exchange rate is associated with the assessment of inflation. Economists use the index to predict inflation in the short term. EPI is also used to assess how the structure of trade flows has changed. Generally speaking, the growth of the indicator has a positive effect on the US currency.
The index report is published in the first decade of the month at 8:30 am New York time.

4. Balance of payments - Current account (Balance of payments)
The balance of payments is a concept first used by the British economist James Denem-Stewart, which describes the movement of the money supply in the form of payments from state to state.
Represents the ratio between the amount of payments coming from abroad and the amount of payments going abroad. If payments incoming to the country exceed payments to other countries and international organizations, the balance of payments is active (positive balance), if vice versa, then it is passive (negative balance). A positive balance (or a decrease in the size of a negative balance) is a favorable factor for the growth of the national currency. Has a limited impact on the market. Its value is published every quarter, in the middle of the publication month at 10:00 AM EST (New York).
This theory states that the exchange rate of a currency should be in a state of equilibrium, that is, at a level at which the country's balance sheet (like the balance of a bank account) remains constant. A country with a trade deficit will experience a decrease in foreign exchange reserves, which leads to a devaluation of its own currency. A cheaper currency makes that country's goods (exports) cheaper on the world market and imports more expensive. After some time, the volume of imports decreases and exports increase, which in turn leads to a balance of trade and an equilibrium of the currency.
The balance of foreign payments and receipts of the country includes: the trade balance (trade balance) and the balance of capital movements (capital payments gap). The excess of receipts from abroad over payments abroad constitutes a positive balance of payments and leads to an increase in the national currency. The excess of payments abroad over receipts creates a deficit in the balance of payments (negative balance) and leads to a depreciation of the national currency.
Like the theory of equality of purchasing power, the theory of the balance of payments is largely based on the flow of goods and services, ignoring the increasing role of global capital flows. In other words, money in today's economy buys not only goods and services, but also securities such as stocks and bonds. The increase in the global movement of capital has led to the creation of the theory of the securities market.

5. State budget (Federal budget)
The state budget characterizes the ratio between state revenues and its expenditures. When the level of government revenues exceeds its expenditures, a positive balance is formed. When the level of government spending exceeds its income, a negative balance (deficit) is formed. This indicator has little effect on the market. It is usually used for long-term analysis of the economy. The budget deficit is considered in context with other indicators: industrial price index (PPI), consumer price index (CPI), monetary aggregates (M1, M2, M3), etc. Its value is published around the 20th day of each month.