Economic data releases

Economic data releases are information sets that describe activities in an economy. Typically they are in a time series format that covers, weeks, months, quarters or yearly statistics. Each economic data release will have its own format for how often it is released and at what times but they typically are pre-scheduled and released at the same time each release.

Economic data releases are something that is very important when it comes to moving the Forex market. These are regularly published by government agencies and central banks around the world. Every day, stocks, bonds and currencies fluctuate in response to and the expectations of new economic information and the data produced by economic data releases. So, needless to say, they are a big deal!

Economic Data Primer

Professional traders and money managers spend a lot of their time researching economic data statistics because they provide crucial clues about financial markets and the potential future health of economies. They do this because fundamentals and economic indicators are what move the Forex market a good majority of the time.

In this article, we will refer to economic indicators, data sets, figures, releases, and economic news sets interchangeably throughout this lesson. They all describe the same thing. Different analysts will prefer to use one term over another to describe the same thing which is why we will use them interchangeably. We will look at some of the major economic figures that can and do have an impact on the prices of currency pairs in the Forex market because paying attention to these figures is very important as they will have an impact on your trading.

Some of this information might not be the most exciting right now but it’s all something that you will undoubtedly come across on a daily basis when you are trading in the Forex market. As with all things you will gain a much greater understanding of how these economic releases impact the markets by experiencing them in real-time.

The Importance of Globalization

It was once the case when traders would primarily concern themselves with United States based statistics because, at the time of this writing, the United States is the world’s largest economy and single superpower. However, with today’s globalization of financial markets and the reduction of trade barriers between most countries, this is no longer the absolute case. Globalization is a real thing and here to stay (for now) so traders need to make sure they are paying attention to economic data sets from the other key countries that belong to the currencies they are trading as well. This is particularly true for key currencies such as the Great British Pound, Euro, Japanese Yen, Swiss Franc and the Canadian, New Zealand, and Australian Dollars.

Of course, if a trader is interested in trading emerging currencies such as the Mexican Peso or some of the Scandinavian currencies then they will need to concern themselves with the indicators from those countries as well. The good news is that more and more people are jumping into those currencies so more information is becoming broadly available now.

How to know when Economic Data is Released

Almost all economic data and statistics are published at pre-set times during the month. This means that traders will know well ahead of time what data is coming out as long as they use an economic calendar ahead of time.

One of the best and most simple to use free economic calendars that is one of the most highly used by retail traders is from Forex Factory.

ForexFactory.com/Calendar

For the most part, traders will want to concern themselves with the data sets that have the impact coloured red. This is not always the case though; sometimes orange impact events will move the markets quite a lot and sometimes there will be red impact events that are not all that important.

For example, at the time of this writing, Forex Factory puts the weekly jobless claims out of the U.S. as a red impact event. However, we have found that this rarely moves the U.S. dollar because it is a “weekly” release and therefore this tends to be a very consistent number and well-known expectation. However, if the market is currently very focused on jobs data of if a central bank is overly concerned with jobs then it very well could deserve to be a red impact colour.

On the flip side, at the time of this writing, Forex Factory colours U.S. Core PCE as an orange impact but this happens to currently be the Fed’s main measure of inflation so it’s actually really important and can have quite an impact on the U.S. Dollar at times.

The main thing is that traders need to be in tune with the market and what the major theme is to understand the impact of any event at any given time. A yellow impact event could be the most important thing that will move prices if that is what the market is obsessing over at that particular moment.

What Traders Need to Know about Economic Data

As a trader there are a few important things they need to know about economic data:

• What data is coming out and when.
• What the market expectations are for that data.
• What the potential impact the release could have on the currencies that will be affected.

If a trader knows the above then they can start to form a bias for their trading.

The Expectations of Data is Critically Important

When talking about fundamental economic releases; what the market EXPECTS is, at the very least, as important, if not more important, than the actual headline number when it is released.

This expectation is very often one of the deciding factors as to which economic statistics are being viewed as significant at any given point in time. For example, if the market is paying close attention to a particular economic indicator then you know that it is likely to be important because traders only want to focus on what the vast majority of market participants are focused on. Traders also want to know why they are focussing on certain information.

The simple thing with all of this is that the market is going to be paying the most attention to what the central banks are saying that they are paying the most attention to. You can really make it that simple most of the time. Generally, if a central bank publicly states that they are heavily monitoring jobs data because they are very concerned with poor readings for example, then the rest of the professional market is going to focus with laser beam precision on jobs data! In this situation, traders probably don't care much about what housing data says because the central bank is not concerned either.

In this example, the market expectation around jobs data is going to create a lot of price movement before the jobs data is actually released. This is sometimes referred to as “trading into a risk event” using the market expectation and can be very valuable to a traders trading. What happens after the jobs data is released will largely be a product of unwinding the expectations based on the actual numbers that were released.

Economic Data and Economic Cycles

It’s important to view economic data developments in the context of trends and cycles. What does this mean?

The Trend

The trend is the long-term rate of economic expansion within an economy. So, if we have a situation where a particular data set has been coming out really positive 9 months in a row then we can confidently say that one bad number does not change the overall positive trend. 9 positive readings out of 10 makes for a very positive trend and the one bad reading could be dismissed as long as more poor readings don't keep happening.

Industrialized economies tend to have growth trends that can last decades so traders don’t need to change their entire opinion of the fundamental situation of an economy just because one bad number came out the previous month.

The Cycle

The cycle represents short-term fluctuations around the trend and that too can provide some nice trading opportunities.

The Economic Cycle

Since we have made mention of the economic cycle it is perhaps a good point to give you a simplified explanation of what it actually is so that you can better understand how it functions in relation to economic data.

There are 4 stages of cyclical activity in the business cycle:

1. Expansion: This is a time when demand first increases and then starts to gather momentum. This demand creates jobs and new employment which then creates more demand for consumer goods and housing. This is because more people have good paying jobs and more disposable income. This is the time when people are most secure with their job and spending their money. Policymakers love this part of the business cycle.
2. Peak: The earlier momentum from the expansion phase cannot continue forever and at some point, it has to top out. Interest rates typically rise near the peak because of the prolonged good economic conditions from the previous expansion. Interest rates go up because inflation is at or has breached the central bank's mandate and they need to slow it down. These higher interest rates are at times arguably what causes the next part of the cycle.
3. Recession: Demand starts falling which causes producers of consumer goods to start cutting back on labour in an effort to remain profitable. This cutting back of the labour force starts to show up negatively in the unemployment statistics. Unemployment starts to rise and this, in turn, reduces consumer demand because fewer people have jobs, and as a consequence have less disposable income. Policymakers want this phase to be as short as possible so that the economy can get back to growing again.
4. Trough: At some point just as the economic situation looks the worst the total economic output will find a bottom and stop falling. The central bank will typically start cutting interest rates with the hope that businesses will borrow money and invest in new projects. The idea is that this will create new jobs and stimulate demand for consumer goods as well. The point is to get out of the trough and back into the expansion phase quickly.

Indicators within the Economic Cycle

Leading (Cyclical) Indicators

Leading indicators are commonly referred to as cyclical indicators. They help economists to measure the economic cycle. They are significant because they can be useful tools for short-term predictions of how well economic activity is doing within a nation.

A leading indicator is a measurable economic piece of data that changes its trend before the economy starts to change or enter a new trend. They are used to help predict changes in the economy before the data proves a change has already occurred. But caution should be taken because they are not always perfectly accurate in real-world applications.

Leading indicators are used to gain clarity on which way the health of the economy is potentially headed. Some of the ways are as follows:

• Investors use them to adjust their strategy to benefit from future market conditions.
• Federal policymakers use them when they are considering adjustments to monetary policy.
• Businesses use them to anticipate economic conditions that could potentially affect their revenues.

In practice, leading indicators are not always accurate predictors of the future but when used in conjunction with other data, they can reveal certain trends which support the probability of changing economic conditions.

Leading indicators include items such as:

• Interest rates
• Business confidence surveys
• Stock share prices
• Housing starts
• Consumer credit
• Car sales
• Manufacturing orders

Stock share prices are a leading indicator because the stock market will always attempt to price in positive or negative economic conditions roughly 3-6 months in advance. Note, all markets are filled with speculators trying to get in on the action as soon as possible so that they can make as much money as possible. This is what makes all markets discounting mechanisms.

Another example is if the rate at which people are purchasing cars starts to drop then this could be a warning sign that people are worried about their jobs or have less money to purchase big-ticket items. This could be a warning sign of a pending downturn or slowdown in the economy. If car sales start to climb then we know that consumers have more money to spend which tells us earnings are potentially rising. We can see this in durable goods data before we actually see an uptick in the average hourly earnings data. This is all useful information to use in determining where the economy is potentially within the cycle.

Coincident Indicators

Coincident indicators help establish a reference point of where we are in the overall economic cycle because they focus on where the economy is currently right now. It’s a metric which shows the current state of economic activity within a particular area or subsection of the economy.

Coincident indicators are important because they show economists and policymakers the current state of the economy.

Coincident indicators include:

• Employment
• Real earnings
• Average weekly hours worked in manufacturing
• The unemployment rate
• Gross Domestic Product

Lagging Indicators

A lagging indicator is a measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend. By their very definition a lagging indicator is not something that can be used to predict where the economy is heading into the future. It’s often a technical indicator that trails the price action of an underlying asset.

Economists and bank traders use lagging indicators as a way to "confirm" the strength or weakness of a given trend within the economy. Its only real value to us as retail traders is to use it as a confirmation tool of what we already know to be true. It never hurts to reinforce our bias with real information.

Since these indicators lag the price of the asset, a significant move in the market generally occurs long before the indicator can provide any useful information. They confirm the existence of long-term trends but they do not predict them in any way and as such should only be used as a confirmation for a trend in the economy.

Lagging indicators are things such as:

Manufacturing capacity utilization Job vacancies Average earnings Labour costs Productivity Unemployment Investment Order backlogs Stockpiles of consumable goods

Indicator Wrap Up

So, we can sum all this up by saying that

• Leading indicators turn 3-12 months before GDP
• Coincident indicators turn with GDP
• Lagging indicators turn 3-12 months after GDP

This is the historical average but these days’ things are moving so much faster than they used to so it would be wise to think 3-6 months or even earlier if the pace of the economic movement warrants it.

GDP Data

Gross Domestic Product, or GDP for short, is the total of all economic activity in one country regardless of who owns the productive assets (the things that generate the money). For example, if a Japanese-owned company is making cars inside of the United States then this economic activity will count in the U.S. GDP calculation.

Because GDP is the main measure of total economic activity this makes it very important. It’s the monetary value of all the finished goods and services produced within a country's borders during the specific time period being measured. It includes all private and public consumption, government outlays, investments, and exports minus imports that occur within a country. Put simply, GDP is a broad measurement of a nation’s overall economic activity and health.

GDP is most commonly used as an indicator of the economic health of a country. It’s also used as a gauge of a country's standard of living for its citizens. Since the way of measuring GDP is fairly similar from country to country, GDP can be used to compare the productivity of various countries with a fairly high degree of accuracy.

A nation’s GDP from any time period can be measured as a percentage relative to previous years or quarters. When traders measure GDP in this way, it can be tracked over long periods of time and used in measuring a nation’s economic growth (or lack of growth). It can also help in determining if an economy is in a recession or if it is growing in a way that increases the standard of living for the nation’s people.

Real GDP

Real gross domestic product is an “inflation-adjusted” measure that reflects the value of all goods and services produced by an economy in a given year. This is expressed in base-year prices, and is often referred to as "constant-price," "inflation-corrected GDP” or "constant dollar GDP."

Unlike nominal GDP, real GDP can account for changes in price levels and provide a more accurate figure of economic growth. This represents the total economic activity in constant prices.

It’s significant because it’s useful for tracking how an economy is developing over time. Real GDP reveals changes in economic output after adjusting for inflation. So, if regular GDP was 4% but inflation was 2% for the same time period, then real GDP is actually 2% (4% - 2% = 2%).

This is typically viewed in the context of the overall economic cycle and becomes more significant at certain points within the economic cycle.

Nominal GDP

Nominal GDP is gross domestic product, or total economic activity, measured at current market prices.

Nominal GDP differs from real GDP in that it includes changes in prices due to inflation. Basically, Nominal GDP tells us the overall increase or decrease in price levels. It’s significant because it describes the total level of production or economic achievement within a nation.

Per Capita GDP (GDP per Head)

Per capita GDP measures the output on a per-person basis. The equation is GDP divided by the population size of the nation being measured.

It’s significant because it’s used as an indicator of overall economic welfare. Output per head can be used as a good guide to understanding the living standards of the nation’s people. If real GDP per head increases it indicates an improvement in the overall economic well-being because people have more money and can therefore increase their standard of living.

Per capita GDP is especially useful when comparing one country to another because it shows the relative performance of each country being measured. A rise in per capita GDP signals growth in the economy and tends to reflect an increase in productivity and economic welfare.

Productivity GDP

This measures the output for one unit of labour or capital. It’s significant because it indicates the “efficiency” and the “potential” of total economic output.

Productivity is highly cyclical since employment and capital are less flexible and change at a slower rate than supply and demand. If you think about it, demand for certain products can dry up virtually overnight but the manufacturing and employees making the products don’t catch wind of this event until much later because there is a time lag.

GDP Deflators

“Deflators” measure the difference between the current and constant price GDP and its individual components. For example, if GDP increases by 4% in nominal terms but increases by 1% in real terms then the implied economy-wide rate of inflation is 3% (4% - 1% = 3%). This is an attempt to smooth out inflation readings.

Deflators are valuable for identifying trends and obtaining advanced warning of price changes which is what makes them valuable to monitor for economists

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.