In this Wiki, we will explore the various types of economic data that most countries put out in the form of pre-scheduled news releases. We will look at what each of them means and why they are important for traders to know about.
This Wiki is a part of our larger and more expanded Economic data releases Wiki. Be sure to check that out HERE.
Economic Data Types
Gross Domestic Product
Gross Domestic Product (GDP) is an important indicator that measures the overall health of an economy. In this Wiki, we will take a look at what GDP is and its various components including:
You can access the Wiki for Gross Domestic Product HERE.
Employment
Employment measures the total employment of both regular employees and people that chose to be self-employed.
It’s significant because it indicates the nation’s total current output potential. What this means is that an economy can only produce as many goods and services from all the people who are willing and able to have jobs or work. If there are no more people to work and build things then the country cannot produce any more than what its workforce is capable of producing.
Employment is highly cyclical because when demand for goods and services is on the rise companies tend to increase working hours rather than add new workers to their employed workforce. However, when the economy is in a downturn then companies tend to lay off workers rather than reduce hours worked because letting people go saves a lot more money on things such as benefits that tend to have heavy costs for companies.
Economists watch out for more hours worked and overtime for positive signals of changes in the employment situation. If these start dropping then this could mean that the economy is slowing down or potentially looking at entering a recession.
Unemployment
This measures the total number of people who are out of work but are ready, willing, and able to work if the opportunity to get work presents itself.
Unemployment is highly cyclical for the same reasons that employment is cyclical; they are just the opposite of one another.
It’s significant because it indicates the level of spare labour employment capacity in the economy which economists tend to view as wasted resources. Unemployment is also referred to as "slack" in employment.
There is also a natural rate of unemployment. Companies can only hire people up to the natural rate of unemployment. At that point, demand for employees will become very competitive because there are no more employees to go around. This will in turn start to cause inflation because average hourly earnings and the number of hours worked will go up. This will give people the opportunity to have more disposable income which they may choose to spend within the economy on big-ticket items such as cars and houses causing inflation.
Inflation is interesting because it’s something that central banks are typically concerned with. This is because central banks are tasked with keeping inflation in line with their policies and fiscal mandates. Too much or too little inflation will cause the central bank to be concerned and may force them to take action in the markets.
Personal Income and Disposable Income
This measures the personal sector's total income after government taxes have been deducted.
It’s significant because it’s the basis for consumer consumption and personal savings within the economy. Personal consumption and spending account for between one-half and two-thirds of most developed nations’ GDP which makes this very important.
If people have more personal income then they will likely spend more money within the economy. If they lack disposable income then it’s not likely that the majority of people will be willing to spend what little money they have on anything other than items they must purchase to survive (at least that is the theory). In practice, people tend to just go into more debt when times are bad.
Economists look for sustainable growth on real personal incomes. If it's too rapid then it becomes highly inflationary. If it's too slow then this could possibly become a deflationary environment which is a really bad thing for economies (central bankers do not like this type of environment because they tend to lose their jobs).
Consumer and Personal Expenditure, Private Consumption
These measure personal spending on a per-person basis. Said another way, it’s how much each individual consumes nor how much stuff they buy within the economy.
They are significant because they are a key component of GDP. This follows along from personal income and disposable income because it tells us how much of that money each individual is willing to part with right now to consume the things they need and want. Remember, spending is a very important indicator of the health of developed nations.
Economists look for real percentages to change over time to help them adjust their economic outlook. For example, if spending grows at a rate of 6% and prices only rise 4% then this means that spending has only gone up 2% in real terms.
Positive or negative changes in spending on durable goods such as cars, washing machines, and farm equipment, can be an early signal of changes in the economic situation. More purchases are considered positive while declining purchases are considered negative for the economy.
Consumer Confidence
Consumer confidence measures how people feel about their economic well-being within their home nation. Are people confident or nervous that their standard of living will be maintained, increase, or go down in the near future?
It’s significant because it can determine how people will go about their short-term spending, borrowing, and saving habits.
This is a leading indicator because the more confident consumers are the more likely they are to spend money. And if people are spending more money this boosts consumer spending figures and puts upward pressure on inflation. This is the exact economic situation that a central bank would love to see happening within their country.
If a consumer is not confident in their economic well-being or they think that there is a possibility that they could lose their job then it is reasonable to assume they will cut back on spending. Cutting spending will negatively impact consumer spending numbers and will ultimately cause inflation to weaken over time.
Business Conditions: Indices and Surveys
These indices and surveys measure observational evidence of the business climate. The thing that makes them interesting is that they are surveyed from the perspective of the businesses themselves producing goods and services within the economy.
They are significant because they are a valuable early warning of changes in the economic cycle. They are also important because the information comes directly from the companies that are providing employment. The companies surveyed express their level of confidence which can be a telling sign of their intent to hire more or let go of employees.
They provide valuable evidence of the perceptions and expectations relating to overall business conditions.
Inventory Data
Inventory data measures the levels of finished goods that are being held at the factory gate by the producers of those goods. This data also measures the level of inventory that is being held by the distributors on behalf of the producers of those goods.
This type of data is significant because it indicates the level or degree of demand pressures for finished goods. This pressure comes in the form of potential sales.
If there are low levels of inventory then this could potentially indicate that there is more demand than there is available supply. This is a good thing for companies because it indicates that the economy is in an expansion phase and they can now start ramping up production and hopefully have higher profits.
However, this may not necessarily mean great things for the companies. Low levels of inventory could also mean those producers are not optimistic about demand so they are producing less to protect themselves in the event that they can’t sell everything that they produce.
There is a balance that needs to be struck here. This is an indicator that is best used with other indicators to confirm the strength or weakness within a particular economy.
Economists look at the stock-to-sales ratio to judge whether low inventory is a product of not being able to keep up with demand or because the producers of the goods are not optimistic about future demand. If ratios are higher than normal, production imports could potentially be cut unless the demand starts to increase. If the ratios are lower, production and imports could potentially rise unless demand decreases.
Industrial and Manufacturing Production
These data sets measure the value-added output of natural resource mines and manufacturing companies.
They are significant because they are an indicator of the current levels of industrial activity. Most economists believe that industrial production is a broad indicator of the state of the economic cycle for countries that have an established manufacturing sector.
For the most part, all the countries and currencies that retail traders will be looking at trading have well established manufacturing sectors in various states of increasing or decreasing production at any given time.
The output of industries producing capital goods and consumer durables tends to suffer more than other industries during a downturn in the economic cycle. This is because everyday people stop buying things they don’t need to survive, which for most major economies, makes up most of the spending. This in turn leads to more layoffs and job loss which further exacerbates the problems.
Capacity Utilization
Capacity utilization measures how much factories and the machinery used to manufacture goods are being used in developing goods. This is done on a nationwide scale to get a good average on how efficiently companies are operating in producing products.
It’s significant because it’s an indicator of the level of economic output which can give us some clues about inflationary pressures. Strong economic growth with high capacity use suggests there are upward inflationary pressures because the machinery that the country has is being used very close to peak production. Basically, companies are operating efficiently and can’t produce much more goods without adding new machinery and more employees. However, if demand is expected to remain high and interest rates are low, producers may invest in new plant and machinery which can also have an inflationary effect on the economy. Inflation is good as long as it doesn’t get too high.
What it all comes down to is this; are everyday people and companies spending money and expanding? If they are then this is typically good news for the economic cycle because it’s very likely in an expansion phase.
Manufacturing Orders
Manufacturing orders measure the total number of new orders received in a given time period by manufacturing companies to produce their goods.
It’s significant because it indicates what the very near-term for potential manufacturing output is within the economy.
In the short term, high levels of orders indicate upward pressure on employment and production output. This may suggest a rise in inflation if unemployment is already low, capacity use is high, or inventories are low. This indicator is typically best used in conjunction with others.
The level of orders can potentially provide an early heads-up of changes in the economic cycle. A rise in orders may signal an end to a recession and a fall in orders may indicate the economic cycle is peaking. But this all depends on where the economy was coming from. The same reading could mean different things at different points in the economic cycle.
Motor Vehicles
This one is pretty self-explanatory. It measures industrial activity involving cars and trucks.
It’s significant because it indicates the level of manufacturing production involving cars and trucks. This can tell us a lot about consumer demand for high-ticket items or durable goods.
Vehicle sales are a reasonable leading indicator because demand for cars is suggestive of personal consumer consumption. On the other hand, van and truck production is indicative of business investment because businesses tend to use larger vehicles for their business operations such as transporting goods around. If more stuff is being bought within the economy then businesses will need to transport more goods from their factory to wherever the end consumer purchases them.
Construction Orders and Output
These measure activity in the construction sector.
They are significant because they indicate new investment and future potential economic output in the form of new construction projects.
Construction work is highly seasonal because it’s obviously easier to complete projects when there is good weather and not when there is a foot of snow on the ground.
Construction activity is very sensitive to the expectations of future demand and to interest rates. This is because positive expectations are what drive purchases of new houses and condos which mostly tend to be financed.
High levels of orders potentially mean demand for building materials and extra labour usage over the coming months. Low levels mean just the opposite.
Housing Starts, Completions, and Sales
These all measure the number of new houses started and finished, total sales, along with existing homes.
They are significant because they indicate the level of construction activity which can be a telling sign of industrial and consumer demand. Obviously, the more construction that is happening within an economy the better the outlook will be for that nation. This also helps to put upward pressure on inflation.
Housing starts imply that there will be demand for raw materials and labour that are needed to make a house. Both of these are closely linked to employment and interest rates.
Completions imply that a possible sale has taken place. For example, this could mean demand for or a new mortgage has already been written. If a new mortgage has been written then demand for consumer durables such as household appliances and cars may increase as well.
Sales are positively influenced by people’s incomes rising and lower interest rates. The more money that people have along with lower interest rates makes it easier for people to buy houses because they have the money to do so and it’s more affordable because of the lower interest rates.
What we don’t want to see is having lots of completions and no sales. This could mean that many building projects will be left vacant and unsold. This situation will put negative pressure on the housing market, banks that hold mortgages, and could increase unemployment. This was part of the situation that happened in the United States back in the Great Recession that kicked off in 2007.
Retail Sales or Turnover, Orders and Stocks
These all measure the most common sales by retailing businesses. Traditionally, a retail business is simply a place where you and I would go shopping to buy our basic necessities and any additional luxury items that we may want.
They are significant because they are a great indication of consumer demand within the economy. Retail sales can cover as much as two-thirds of total consumer spending in certain nations, especially the larger G8 nations.
They are a key indicator of consumer confidence. If consumers are confident with their economic situation this can create extra demand for goods and services because people are more willing to part with their money.
Economists focus on volume increases to help determine if an economy is performing well and decreases of volume to determine if the economy is performing poorly.
Wholesale Sales or Turnover, Orders with Stocks
These measure sales by wholesaling businesses.
They are significant because they indicate consumer demand which we know is a big deal. A fall in wholesale sales or inventories suggests or confirms slack in business and retail demand. Slack simply means that there are spare resources not currently being used that have the potential to be used if demand picks up.
These are not as significant as retail sales but most economists think they are still worth keeping an eye on.
Imports of Goods and Services
These measure purchases made to companies that happened from outside of the company’s home nation. So if a company in Canada bought raw materials from China then this is considered an import of goods in Canada.
It’s significant because it may displace domestic production and put a strain on financial resources. For example, if everyone in the United States is buying German cars such as BMW’s or Audi’s but they are not buying cars made inside of the United States such as Ford’s or GM’s then this will have a negative impact on domestic producers of cars within the United States.
A country typically imports goods and services because it cannot produce them itself. Of course, this is not always exact. People and companies will also buy from abroad if there is a competitive pricing advantage to do so.
The other reason people will buy from abroad is that there is some sort of desirable quality. For example, if you live in the United States and you really want to drive around in a brand new Rolls Royce or Bentley then you will need to purchase that car from the United Kingdom.
Oil is often left out of U.S. figures because it's something that Americans must have and traditionally have no choice but to import because the country has not historically produced enough oil domestically to satisfy its own demand. However, with the advent of new fracking technology, the U.S. is now starting to produce more and more of its own oil and eventually it might be able to sustain its own domestic demand by itself. This is something that you will need to do some research on depending on when you have gone through this material.
Exports of Goods and Services
These measures sales made by the domestic country to other countries around the world. This is basically the exact opposite of imports of goods and services.
It’s significant because exports generate foreign currency which can help drive economic growth. Sometimes this foreign currency has much more value than the domestic currency and this can add extra revenues to the domestic company’s balance sheets. For example, if a company in Canada sells their product to a company in the United Kingdom then it would receive Great British Pounds on this transaction. This is really desirable because, at the time of this writing, it takes $1.75 CAD to buy 1 British Pound.
Export growth can boost GDP which would have a positive impact on the economy. The greater the proportion of exports a country has in relation to GDP, the bigger the boost will be to domestic output.
Trade Balance, Merchandise Trade Balance
These measure the net balance or difference between all exported goods and all imported goods in the given time period being measured. The big question is this; is the economy importing or exporting more goods? Typically, most countries prefer to be exporting more than they are importing because that means they are making and selling more than they are purchasing.
It’s significant because it shows a country`s fundamental trading position with other countries. Obviously, most countries will prefer to have more exports than imports.
A large trade deficit may tell economists that there are supply constraints which means that companies are unable to meet the demand coming from abroad.
The balance of trade measures the relationship between national savings and investments of the people and the companies of the nation being measured. A deficit indicates that investment exceeds savings and that the use of real resources exceeds the total output from the nation.
Export and Import Prices, Unit Values
These measures the prices of goods that have been traded with other countries.
It’s significant because it identifies cost pressures, potential exchange rate problems, and changes in the environment of business competition.
Economists compare export prices] with domestic price indicators to get a feel for the way that manufacturers are passing on cost pressure to foreign buyers.
Economists also look at import prices to judge the level of external cost pressure and to asses these indicators.
Producer and Wholesale Prices
These measure prices of goods at the factory gate. This means these are what it cost the manufacturer to produce its goods before any markups.
It’s significant because it tends to be a leading indicator of cost pressures. Producer prices tell us about the level of cost pressures affecting the levels of domestic production. During a recession, the Producer Price Index (PPI) could possibly overstate cost pressures.
On the flip side of that, PPI may understate prices during inflationary periods because raw material contracts and purchases are typically locked in long ahead of when the final production of the product is complete.
Surveys of Price Expectations
This is a survey that measures manufacturing companies’ perceptions of inflationary pressures. Basically, it measures what company directors are thinking about how inflation is affecting their business right now and into the near-term future.
It’s significant because it’s an excellent look inside the mind of the people who are in the trenches of the manufacturing sector. It can serve as a warning of potential price changes.
Economists tend to look for changes in the trend to suggest a potential increase or decrease in cost pressures.
Wages, Earnings, and Labour Costs
Wages and earnings tell us how much money people are making from their jobs. Labour is the cost to the manufacturer in return for the employees providing their services. These all measure labour costs and influence on consumer incomes.
They are significant because they show both cost and demand pressures within the economy. Wages and earnings are closely linked to where we currently are in the economic cycle. If earnings rise faster than consumer price inflation this means that real spending in the economy is growing well and is indicative of a healthy economy.
Since the great recession of 2007, we have not seen wages rise as fast as costs have which means that people have less money to buy the things they need that cost more money. This is a situation where a lot of debt is accumulated which can be bad for people that live in typical households.
Unit Labour Costs
This measures labour cost per unit of output. Said another way, it measures what its employment costs are to manufacture or produce one unit of whatever product the company makes.
It’s significant because it’s an indicator of cost pressures and the competitiveness of a nation's businesses. For example, if the company is manufacturing in a country where employment costs are extremely low then selling their products abroad, means there will be much more potential profit for the company. On the other hand, if the company is manufacturing in a country where labour costs are very high then this has the potential to not be as competitive against other countries with lower labour costs.
This is a key indicator of the efficiency of labour. If unit labour costs fall, the same output of products can be produced for less money because what the manufacturer has to pay to the employee is cheaper per unit. This of course will help the manufacturer increase its competitiveness. But if labour costs go up then this could reduce the economic viability of certain companies because it just costs too much to build its products. Obviously, the company needs to make money to stay in business so lower costs are always preferred.
Consumer or Retail Prices
This measures the price of a basket of goods and services that a standard household is deemed to need to meet its basic living standards. These are things like clothing, food, rent, transportation expenses, etc. Think about the things you need to eat, sleep, and generate enough money to survive.
It’s significant because it indicates the level of inflation that is experienced by a typical household in the particular nation being measured.
The question to be asking is; is it costing more or less to buy my basic standard of living items overall? Does the consumer have more or less money in their pocket after this year versus last year? The answer to this can tell us a lot about what direction the standard of living is heading and where we are within the economic cycle.
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