Economic Indicators – The TradersAsset Academy

We will take a look at several economic Indicators as part of our on-going series of trading guides because we want our traders to understand the role that a fundamental analysis plays in planning a winning trading strategy. It’s important to understand the role that “macroeconomics” plays in trading at this point.

Macroeconomics is defined as “The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity”. This covers areas such as national interest rates, unemployment, housing, monetary policies and GDP estimates to name a few. In short, the term “macroeconomics” covers all factors that effect the movement of world currencies. Macroeconomic facts and figures are released frequently to the public via economic calendars. Have a look at our very own economic calendar as a point of reference.

As a trader, the economic calendar is one of your most efficient tools in planning a strategy for trading currency pairs in Forex and Binary Options.  This is because you will get an overview on just how well a country and therefore their currency is doing, enabling you to successfully predict its movement.

There are many unique factors to take into account when you are considering placing any type of currency based trade.

Non-Farm Payrolls – A measure of paid employment within the USA. The number excludes farm workers, all employees in private households and non-profit organisations. This information is included in the “Jobs Report” which is typically released on the first Friday of each month.

Trade Balance or Balance of Trade (BOT) – refers to a calculation of a country’s exports minus its imports. This figure is released monthly, usually on the second and third week of each month depending on the country concerned.

Trade Deficit/Trade Surplus – “Trade Deficit” describes the amount by which a country’s imported goods and merchandise exceed the value of its exports. The term “Trade Surplus” refers to a country’s imported goods and services being lower in value than its exports. These figures are usually released on the 10^th day of each month.

Consumer Price Index – The Consumer Price Index (CPI), is the benchmark measure of the standard of living in a country. The CPI figure is a comparison of the cost a list of thousands of every day goods and products (which do not include food or energy), with the costs of same list of items at the same date and time in the previous year. This is a clear indicator of inflation and helps traders estimate currency trends. These figures are released around the 15^th day of each month for most countries.

Manufacturing ISM Report & Purchasing Managers Index (PMI) – The Institute for Supply Management (ISM), uses the Purchasing Managers Index (PMI) as a measure of the manufacturing sector. PMI is based on five items; employment environment, production, inventory, orders and deliveries. It is also a very straightforward system to understand: A benchmark figure of 50 is used. A PMI of less than 50 shows the sector is shrinking, a PMI of over 50 shows growth. A PMI of 50 therefore shows the sector has had no change since the previous report was published. These figures are usually released on the first official business day of each month.

Michigan Consumer Sentiment Index (MCSI) – Each month the University Michigan conducts a survey that measures the level of consumer expectations on the US economy. A preliminary report is released around the second week of each month with strong indicators of the full results. The full report is then released on the first of the following month. This is a highly useful tool for currency traders as it indicates if consumers are spending.

Gross Domestic Product (GDP) – One of the most important Indicators for traders to understand a country’s economic health and standard of living is the measure of Gross Domestic Product (GDP). The GDP report measures the monetary value of all goods and services produced and supplied in a country within a specified period of time. This is by far the most followed indicator by traders, analysts and economists alike, and aggregates the data from a number of other sources discussed here. The GDP reports are compiled quarterly but an annual percentage based overview is also made available for each calendar year.

The Durable Goods Report – Durable good are defined here as higher priced goods with a shelf life of three years or more. Examples include motor vehicles, furniture, consumer electronics and jewellery. Durable Goods tend to be expensive and their purchase indicates that consumer spending is increasing. This also hints towards production increase and may mean industrial and economic growth. Similarly, a fall in the demand of Durable Goods may indicate an economy and industry on the decline. Traders can use the results of this report to help assess the strength of a currency. The report is released around the 20^th day of each month and shows results from the previous month.

Producer Price Index (PPI) – This is a measure of the average changes in prices received by domestic producers for their finished goods and provides a very good indicator of inflation. This report does not take into account the services sector, it only measures the pricing of actual goods.  The PPI report is released monthly, usually around the 15^th day of each month.

Unemployment Rate – The unemployment rate is shown as a percentage of the available workforce that is currently unemployed. It is measured by comparing the number of unemployed seeking work versus the total number of people in the workforce. Currency traders should pay attention to unemployment rate changes as these can be an indicator of changes in the underlying economic conditions of a country. Unemployment rate data is released on the 10^th day of each month.

Building Permits – A regulatory body must grant permits before new and existing buildings may be legally constructed or worked upon. These are only granted when there is a demand for homes, therefore they can be seen as an indicator of the future state of an economy. Building also leads to employment and the purchasing of materials, which are also indicators of an economy heading towards growth. The US provides this information on the third Tuesday of each month.

Industrial Production (IP) – The IP reports covers several different industries in the US, including factories, utilities and mines. This report gives a complete overview and accurate account of the growth and resource indicators of each area and can be used to estimate “Capacity Utilisation Ratios” for each sector. Changes in the levels of these indicators usually reflect similar changes in overall economic activity, which in turn may effects the GDP of a country. For example, the industry benchmark is 100% as defined in 2002. Anything above 82% can mean high demand and can hint towards supply shortages in future. In stark contrast, a ratio lower than just 80% can hint towards an economy on the decline with recessions and unemployment. It’s worth noting the IP ratio rarely exceeds 85%. This report is released on or around the 16^th of each month.

Housing Starts – The Housing Starts report gives information on how many new residential constructions have begun, how many have been completed and how many permits were issued in each month. This is seen to be a highly accurate indicator of a country’s economic strength, and therefore its currency. Traders can compare the monthly report with data from the same time period in the previous year to understand the growth trends of a country and its economy. This report is compiled on or around the 17^th day of each month.

The above Economic Indicators and more can be found easily on our economic calendar. The relevant currency pairs can then be found on our featured Forex and Binary Options broker websites. Traders should always research any variable that may effect a currency before trading to maximise the chances of success. Explore traditional media such as television and radio, and act as quickly by exploring our approved broker list and take advantage of any possible movements in currencies as soon as reports are released.

All Forex and Binary brokers listed on our website have many banking options available that can ensure all traders can deposit and withdraw funds from their accounts quickly and easily. Not all Forex trading sites have the ability to rapidly pay their customers based in the US, but if you are a US trader, please read our detailed reviews to find the brokers that will pay you promptly whenever you request a withdrawal.