The Consumer Price Index (CPI) is looked at as the benchmark inflation guide for the United States economy. The CPI measures the change in the cost of a fixed basket of goods and services which would include for example: transportation, electricity, haircuts, restaurants etc. The CPI is published on a monthly base.
The CPI is an extremely important number to follow on a consistent basis both for traders as well as the rest of the public. When prices rise this erodes our purchasing power. In addition, if wages remain static this will reduce consumer’s purchasing power which will lower our living standards. Inflation plays a major role in how politicians vote and how corporate planning takes place. The economy and how businesses functions can be directly affected by inflation.
It is difficult to gauge pricing pressure in one specific good or service and use that as an overall barometer on inflation levels. For example the price of beer may rise by 10 percent in a single month but that would not cause alarm bells if the prices of other liquid drinks were falling or remaining constant. So, the tool most widely used to identify price changes across numerous categories is CPI. The CPI is tracked by traders, analysts, politicians and many others to determine trends and economic policies. Many investors value the core CPI even more than the headline as it removes the volatile components of food and energy.
Producer Price Index (PPI)
The Producer Price Index (PPI) is another major indicator of inflation. The PPI is reported each month and is a measure of wholesale prices at the producer level for items such as consumer goods and capital equipment. The PPI is different than the CPI in that it does not include services.
There are two elements of PPI which consist of PPI intermediate goods and PPI finished goods. The PPI intermediate goods measure the cost of commodities that have undergone transitional processing prior to the final product. Items in this category would include auto parts, leather, fabric, flour etc. The PPI finished goods would consist of items such as furniture, automobiles, gasoline, apparel etc. Both PPI intermediate goods and PPI finished goods are closely watched by traders, economists and politicians.
Purchasing Managers Index
The Purchasing Managers Index (PMI) is a barometer of business activity. The indicator looks at both the manufacturing and services sectors. The PMI is a survey based measure that asks those respondents about how they perceive specific business variable and the potential changes of those variables from the previous month.
Non-Farm Payrolls is a key indicator which represents the payroll data for a large majority of the United States. The indicator does not include non-profit employees, government employees, workers that produce within a private household and farm employees. The indicator is released monthly and is a good barometer of the health of the economy.
The Non-Farm Payrolls is carefully monitored by economist, traders, politicians etc. The numbers are usually released on the first Friday of every month and typically affect the United States dollar as well as the bond and stock markets. The United States Department of Labor surveys close to one hundred and forty thousand businesses and thousands of individual work sites in order to capture detailed industry data on employment, number of hours worked and the earnings of workers.
Industrial Production Index
The Industrial Production Index (IPI) is an indicator published by the Federal Reserve Board which measures the real production output of several groups including utilities, mining and manufacturing.
The production data is calculated by using the Fischer Index Formula. Typically, investors will use the IPI to examine the growth of a specific industry. If the IPI indicates that a specific industry is growing month over month this is a strong indicator that the companies within that industry are performing well.
Retail Sales Report
The Retail Sales Report is a closely watched market indicator tracked by economists, traders, investors and politicians. The report tracks the dollar value of merchandise sold within the retail sector. Typically, sample/data is collected from companies that sell products to end consumers.
The report takes into consideration both large box top stores like Target and Walmart as well as smaller Mom and Pop businesses. Consumer spending makes up two-thirds of total GDP. Activity within the retail sector is a direct reflection on the mood of consumers and the condition of the economy.
GDP is one of the most closely watched indicators on the street and is monitored by traders, analysts, government leaders etc. GDP encompasses the total dollar value of all goods and services produced over a specified time frame. GDP represents everything produced by individuals and businesses, including salaries of workers.
GDP numbers are broadcasted every business quarter by the Department of Commerce. Typically, the Department of Commerce revises the estimates either up or down as it receives more accurate data throughout the following quarter.
GDP is usually compared to the previous quarter or year. For example, if the third quarter GDP is up five percent, this means that the economy has grown by five percent over the second quarter.
Consumer Confidence Index
In a nutshell the Consumer Confidence Index (CCI) is a measurement of citizens’ within the United States attitudes about the current and future economic conditions. Within the United States confidence is the driver of demand for the US economy. Typically, when confidence is high, consumers will shop/spend more.
The index is made up of a monthly survey of five thousand households across the United States and is monitored closely by economists.
Manufacturing and Trade Inventories and Sales
The manufacturing and trade inventories and sales is a direct source of information on the state of business inventories and business sales within the United States.
This is an important indicator because it often provides clues about the growth and contraction of our economy. The growth in business inventories can be a hint that sales are slow and that the growth rate in the economy is also slowing down. Typically, if sales begin to slow down businesses may start to cut production of goods which will invariably translate into inventory reductions.
Source:: 9 Key Market Reports to Watch