How to Read Economic Reports

         Several crucial economic reports and indicators should be put on investors’ radar which might guide investment strategies.  Here, are some key economic indicators.

Nonfarm Payrolls and Unemployment Rates are actively watched by central banks and stock markets since the unemployment rate 6.5% was set as a bench mark for economic stimulus tapering. These rates are released on the first Friday of the month.  Since it is one of the key economic indicators, it is published at 8:30 am EST and gives the market an hour to digest. 

On the other hand, Wall Street pays a lot of attention to the Nonfarm Payrolls since they are used to gauge the health of the job market and predict business cycles.  One hundred fifty thousand jobs are set as the flat line by economists. The figure above it indicates an economic growth, otherwise an economic contraction.

On 9/6/2013, the August jobs report missed the expectation. However it was treated as good news, since the Fed would postpone the economic stimulus tapering. The next FOMC meeting September 17-18 will provide more insight about policy changes.

            Purchasing Managers Index (PMI) is released on the first business day of each month.  It is maintained, surveyed, and released by the Institute for Supply Management (ISM). This index comprises production level, inventories, new orders from customers, employment level, and supplier deliveries, which are surveyed on 300 manufacturing firms.  PMI is a key sentiment indicator for the whole economy, especially for the manufacturing sector.  A reading of 50 is the cutoff. A reading greater than 50 means an expansion, otherwise a shrinkage.

An old saying, “The stock market action of the first day of each month will predict the rest of the month” might apply here. Jim O’Neill, the former Goldman Sachs economist, thought the PMI numbers were among the most reliable indicators in the world!

Not just the USA delivers the PMI monthly. Markit, HSBC, JP Morgan, RBC, and other major data collecting institutions distribute the most updated figures of PMI for many countries.  China’s PMI is broadcasted the last day of each month due to time zone differences.

The final release of quarterly Gross Domestic Product (GDP) reports is released four weeks after each fiscal quarter ends. It is delivered at 8:30 AM EST. The GDP is the bellwether of all the economic indicators which can foretell the health of a national economy. The data is inflation adjusted.  A GDP growing at 2.5% to 3.5% is what the USA strives for to keep the economy in a good cycle.  If the US GDP falls below 0% for two consecutive quarters, then America is declared to enter an economic recession. 

When you read the financial reports, you had better compare the actual numbers with the “Briefing Forecast” numbers.  The “Briefing Forecast Numbers”, sometimes called “whisper numbers”, are truly tracked by Wall Street and provide better guidance for trading.

Thanks for your visiting and reading!