Rs .5
Friday, November 6, 2009
Personal Income and Spending
Impact: Medium
Data: Bureau of Economic analysis
Release time: 30 days after the month in survey
Frequency: Monthly
Source: Bureau of Economic Analysis
Revisions: Monthly
It is a comprehensive monthly summary of personal income and spending, produced by the Bureau of Economic Analysis (BEA). The report collects data about the individuals' income sources and his expenditure. The report also contains data for the widely watched inflation indicator known as the personal consumption expenditures (PCE).
Why is it important?
Though this monthly indicator is not as comprehensive as the quarterly GDP report, its timeliness is very important especially when economic trends are perceived to be nearing a turning point. This data can provide a monthly evaluation source as investors await the quarterly data. Monitoring of this report and a combination of other indicators can give hints on the direction and strength of the economy, as well as an insight into the Federal Reserve’s next move regarding short-term interest rates. The report also evaluates the ability and willingness of consumers to spend which is very important because consumer spending accounts for nearly two-thirds of the overall economic activity.
How is it computed?
The computation of this data takes two separate approaches that must combine to get the overall result. This is a compilation of the personal income then calculation of the spending. These two categories are further subdivided in specific groupings. To start with, the personal income includes wages and salaries, supplements to wages and salaries, proprietors’ income, social benefits and net insurance settlements. On the other hand personal spending takes into account all moneys spent on personal consumption expenditures such as durable and non-durable goods and services, interest payments and transfer payments such as fines to the federal government, donations, fees and other payments that may be made to other governments out of the U.S. Both the incomes and spending are balanced to get the true situation of the population’s income and spending report.
How does it affect the forex trade?
Monetary policy and where it is perceived to be headed play a major role with the direction of investment decisions. If the trend in the report is rising in a way that hints income and spending are overheating, bond prices could fall on the outlook for greater overall economic demand, potentially higher inflation and an increased chance that the Federal Reserve will hike interest rates. The Federal Reserve Bank’s interest rates are a major factor in the shaping of the economic landscape and the rates will indirectly affect the forex rates as the country introduces stimulus to reactivate the economic performance. A rise in income and spending readings can depict economic strength while declining readings typically reflect economic weakness. All these situations are bound to impact directly on the forex rates.
How does it affect the stock market?
There is a scenario where stock prices could experience a temporary lift if the prevailing economic trend is subdued. Incase the income and expenditure trends hint at an economic rebound from a weak economic period, a boost in stock prices may be eminent even with an expected rise in bond yields. That is because the market's expectation of potentially higher profit growth from greater economic demand can be the more influential factor in driving stock prices higher. Thus, it can be the more-dominant factor driving stock prices for a period, overshadowing even the negative impact of rising bond yields. At times, monthly income may not necessarily change the spending pattern simply because income earners may opt to suspend their spending for different reasons ranging from anticipated drop in commodity prices to the fear that they may soon. If however the imbalance persists it might as well imply that money is being earned locally but the income owners are holding it to invest in other economies thus if they don’t seem to trust the future of the local economy. This may lead to a slow down at the stock markets.
Spending breaks are more likely to occur when there is an impending change in government such as during election time. People are likely to hold spending especially if the people are optimistic of a new government that they believe may make changes on the economic policies that are in turn likely to affect the economic landscape in a big way. Although spending breaks may not mean the economy is declining, it may cause temporary price drops at the stock market before investors start spending freely again.
Data: Bureau of Economic analysis
Release time: 30 days after the month in survey
Frequency: Monthly
Source: Bureau of Economic Analysis
Revisions: Monthly
It is a comprehensive monthly summary of personal income and spending, produced by the Bureau of Economic Analysis (BEA). The report collects data about the individuals' income sources and his expenditure. The report also contains data for the widely watched inflation indicator known as the personal consumption expenditures (PCE).
Why is it important?
Though this monthly indicator is not as comprehensive as the quarterly GDP report, its timeliness is very important especially when economic trends are perceived to be nearing a turning point. This data can provide a monthly evaluation source as investors await the quarterly data. Monitoring of this report and a combination of other indicators can give hints on the direction and strength of the economy, as well as an insight into the Federal Reserve’s next move regarding short-term interest rates. The report also evaluates the ability and willingness of consumers to spend which is very important because consumer spending accounts for nearly two-thirds of the overall economic activity.
How is it computed?
The computation of this data takes two separate approaches that must combine to get the overall result. This is a compilation of the personal income then calculation of the spending. These two categories are further subdivided in specific groupings. To start with, the personal income includes wages and salaries, supplements to wages and salaries, proprietors’ income, social benefits and net insurance settlements. On the other hand personal spending takes into account all moneys spent on personal consumption expenditures such as durable and non-durable goods and services, interest payments and transfer payments such as fines to the federal government, donations, fees and other payments that may be made to other governments out of the U.S. Both the incomes and spending are balanced to get the true situation of the population’s income and spending report.
How does it affect the forex trade?
Monetary policy and where it is perceived to be headed play a major role with the direction of investment decisions. If the trend in the report is rising in a way that hints income and spending are overheating, bond prices could fall on the outlook for greater overall economic demand, potentially higher inflation and an increased chance that the Federal Reserve will hike interest rates. The Federal Reserve Bank’s interest rates are a major factor in the shaping of the economic landscape and the rates will indirectly affect the forex rates as the country introduces stimulus to reactivate the economic performance. A rise in income and spending readings can depict economic strength while declining readings typically reflect economic weakness. All these situations are bound to impact directly on the forex rates.
How does it affect the stock market?
There is a scenario where stock prices could experience a temporary lift if the prevailing economic trend is subdued. Incase the income and expenditure trends hint at an economic rebound from a weak economic period, a boost in stock prices may be eminent even with an expected rise in bond yields. That is because the market's expectation of potentially higher profit growth from greater economic demand can be the more influential factor in driving stock prices higher. Thus, it can be the more-dominant factor driving stock prices for a period, overshadowing even the negative impact of rising bond yields. At times, monthly income may not necessarily change the spending pattern simply because income earners may opt to suspend their spending for different reasons ranging from anticipated drop in commodity prices to the fear that they may soon. If however the imbalance persists it might as well imply that money is being earned locally but the income owners are holding it to invest in other economies thus if they don’t seem to trust the future of the local economy. This may lead to a slow down at the stock markets.
Spending breaks are more likely to occur when there is an impending change in government such as during election time. People are likely to hold spending especially if the people are optimistic of a new government that they believe may make changes on the economic policies that are in turn likely to affect the economic landscape in a big way. Although spending breaks may not mean the economy is declining, it may cause temporary price drops at the stock market before investors start spending freely again.
import and Export Prices
Impact: High
Data: Bureau of Labor Statistics
Release time: Between 12th and 15th of the month following the survey
Frequency: Varies
Source: Bureau of Labor Statistics
Revisions: Monthly
A price index tracks purchasing power by measuring how the price of goods and services is changing. The export and import price indices are used to show the value and prices of goods and services getting into and out of the U.S. market. The index uses a benchmark approach, similar to the CPI, to measure the change in U.S. dollar prices of goods or services purchased from abroad by U.S. residents as well as the goods and services sold to the foreign market from the U.S.
How important is it?
Although it is a backward looking indicator, export and import prices have a big influence in the interest rates, the economy as well as the stock and bond markets. This is because import and export prices are a clear indication of the economic performance of U.S products and services both locally and abroad.
The export and Import Price Index is also important since it is used to help gauge the impact on inflation from changes in the value of the U.S. dollar. It has an inverse relationship, whereby a lower dollar typically leads to higher import inflation, and vice versa. The impact occurs with a lag, which can vary by industry from a few months to a few years. Although the index has two segments thus the export and import segments, less attention is paid to the export portion since it does not feed into overall U.S. inflation rates.
How is it calculated?
It is calculated using a benchmark approach that compares a household's cost for a specific basket of finished goods and services with the cost of the same basket during an earlier benchmark period (reference base, which is the average index level for 1982-84). The weight given to each basket item is fixed.
How does it affect the forex?
Stocks and bonds typically fall in reaction to higher-than-expected price index readings (inflation), more so when the economy is growing above its potential. This happens because undesirable rates of inflation can hurt the valuation of stocks and bonds, a situation that may create the perception that the Federal Reserve Bank is likely to raise interest rates. Such imaginations in the investment fraternity may eventually result to a slow down in economic activity.
On the other hand, lower-than-expected price index readings can lift the prices of stocks and bonds, even though there are acceptable limits with stocks. Rising bond prices and falling bond yields may enhance the relative attractiveness of stocks. However, stocks can suffer if price index readings keep declining, especially if the economy is growing below its potential because it implies slower corporate profit growth as consumers postpone purchases. In a situation where import prices prove to be far more than export prices, the current account balance may experience deficits leading to a drop in the dollar value. If such situations persist, then the international demand for the dollar may decline with investors viewing it as a weak currency. This may further affect the overall trends in international trade of goods and services.
How does it affect the stock market?
Investors at the stock market generally watch this index as it gives an insight into the trend of the market in days to come. If the index balances well in favor of any sector, investors are likely to shift their attention to the said, sector and raise its share price due to increased demand. Since the import and export index is influential in setting up the country’s monetary policy, it is quite advisable for any investor to keep track of the events in order to make strategic investment decisions before the Federal Reserve Bank takes any measures that may affect your profits in a negative way.
Federal Reserve Bank interest rates are adjusted in respect to these indices, factor which makes investors to consider it as a main indicator on the trends of interest rates to come. It is wise to calculate your investment earnings against the inflation or existing interest rates since at times high interest rates may mean you end up getting far much less than you had anticipated. Such circumstances may force investors to sell their holdings in stock and buy bonds and vice versa to counter any effects that may be brought about by the changes in interest rates.
Data: Bureau of Labor Statistics
Release time: Between 12th and 15th of the month following the survey
Frequency: Varies
Source: Bureau of Labor Statistics
Revisions: Monthly
A price index tracks purchasing power by measuring how the price of goods and services is changing. The export and import price indices are used to show the value and prices of goods and services getting into and out of the U.S. market. The index uses a benchmark approach, similar to the CPI, to measure the change in U.S. dollar prices of goods or services purchased from abroad by U.S. residents as well as the goods and services sold to the foreign market from the U.S.
How important is it?
Although it is a backward looking indicator, export and import prices have a big influence in the interest rates, the economy as well as the stock and bond markets. This is because import and export prices are a clear indication of the economic performance of U.S products and services both locally and abroad.
The export and Import Price Index is also important since it is used to help gauge the impact on inflation from changes in the value of the U.S. dollar. It has an inverse relationship, whereby a lower dollar typically leads to higher import inflation, and vice versa. The impact occurs with a lag, which can vary by industry from a few months to a few years. Although the index has two segments thus the export and import segments, less attention is paid to the export portion since it does not feed into overall U.S. inflation rates.
How is it calculated?
It is calculated using a benchmark approach that compares a household's cost for a specific basket of finished goods and services with the cost of the same basket during an earlier benchmark period (reference base, which is the average index level for 1982-84). The weight given to each basket item is fixed.
How does it affect the forex?
Stocks and bonds typically fall in reaction to higher-than-expected price index readings (inflation), more so when the economy is growing above its potential. This happens because undesirable rates of inflation can hurt the valuation of stocks and bonds, a situation that may create the perception that the Federal Reserve Bank is likely to raise interest rates. Such imaginations in the investment fraternity may eventually result to a slow down in economic activity.
On the other hand, lower-than-expected price index readings can lift the prices of stocks and bonds, even though there are acceptable limits with stocks. Rising bond prices and falling bond yields may enhance the relative attractiveness of stocks. However, stocks can suffer if price index readings keep declining, especially if the economy is growing below its potential because it implies slower corporate profit growth as consumers postpone purchases. In a situation where import prices prove to be far more than export prices, the current account balance may experience deficits leading to a drop in the dollar value. If such situations persist, then the international demand for the dollar may decline with investors viewing it as a weak currency. This may further affect the overall trends in international trade of goods and services.
How does it affect the stock market?
Investors at the stock market generally watch this index as it gives an insight into the trend of the market in days to come. If the index balances well in favor of any sector, investors are likely to shift their attention to the said, sector and raise its share price due to increased demand. Since the import and export index is influential in setting up the country’s monetary policy, it is quite advisable for any investor to keep track of the events in order to make strategic investment decisions before the Federal Reserve Bank takes any measures that may affect your profits in a negative way.
Federal Reserve Bank interest rates are adjusted in respect to these indices, factor which makes investors to consider it as a main indicator on the trends of interest rates to come. It is wise to calculate your investment earnings against the inflation or existing interest rates since at times high interest rates may mean you end up getting far much less than you had anticipated. Such circumstances may force investors to sell their holdings in stock and buy bonds and vice versa to counter any effects that may be brought about by the changes in interest rates.
Chicago Purchasing Managers Index (PMI)
Impact: Medium
Data: Chicago Purchasing Managers Association
Release time: .00 am on the last working day of the month
Frequency: Monthly
Source: Chicago Purchasing Managers Association
Revisions: One year
A Purchasing Managers Index (PMI) is an economic indicator; it is a composite index based on five major indicators including new orders, inventory levels, production, supplier deliveries, and the employment environment. Each indicator has a different weight and the data is adjusted for seasonal factors.
How important is it?
One key area of the report is growth in new orders, which predicts manufacturing activity in future months. Should this PMI report an unexpected change, dramatic reactions automatically follow at the stock market. The Chicago PMI report is an extremely important indicator for the financial markets as it is the best indicator of factory production. The index is popular for detecting inflationary pressure as well as manufacturing economic activity, both of which investors pay close attention to. The PMI is not as strong as the CPI in detecting inflation, but because the data is released one day after the month, it is very timely hence quite relevant in making future investment decisions. The Chicago PMI index is perceived by market traders to be a good leading indicator for the ISM, which typically affects the financial markets largely.
How is it computed?
The Institute of Supply Management produces the report. It is an opinion survey and relies on people’s perceptions, not data. It also does not capture any technology improvements or increasing production efficiencies that might alter expectations and actual results. The survey captures opinions of over two hundred purchasing managers in the manufacturing industry in the Chicago Federal Reserve Region. This region covers Illinois, Iowa, Indiana, Michigan and Wisconsin areas since this was the region considered to represent the U.S. manufacturing industry. A PMI index over 50 indicates that manufacturing is expanding while anything below 50 means that the industry is contracting.
How does it affect the forex rates?
The right balance of international trade generally influences forex rates. Although the report may not immediately result in forex rate changes, it may eventually affect forex in the long term together with a combination of other factors. Supposing the report indicates a sharp decline in purchases of manufacturing raw materials, the result may be a massive decline in production activity in the days to come. A decline in production automatically translates into a decline in exports, which will eventually reduce the country’s forex reserves especially if the decline in local production may force the country to rely on imported products to meet the local population’s demand. This scenario may not only affect the forex rates but also the general growth of the economy as a whole.
On the other hand, if the report indicates an increase in manufacturing material purchases, the economy is on the growth path and the effects can be visible within the next few weeks. This means an increase in production and most probably, exports will increase too leading to high forex reserves that will eventually strengthen the dollar against other international currencies. This correlation with other indicators may make it an influencing factor in the making of monetary policies. Since it actually acts as a prediction of the ISM index, it has a great influence on the Federal Reserve Bank’s short-term changes in interest rates.
How does it affect the stock market?
The effect of this index on the stock market cannot be underestimated. Investors always need to have an insight into possible future occurrences in the sectors they invest in; there is no better way of doing this other than by having a glimpse at the upcoming orders that have been made by purchasing managers in these sectors. This is because the orders can clearly give a clear picture of what to expect in the near future. If the index indicates a possible decline in economic activity due to fewer orders, investors may be very swift at moving their holdings in a bid to try to safeguard their stocks from losing value in the anticipated decline. This may lead to sudden price changes on the particular shares perceived to be headed for a decline in performance. Since it comes a day prior to the release of the ISM, if it predicts an unexpected change in the ISM, it is likely to spark off massive activity as investors try to act in response to its indication.
Data: Chicago Purchasing Managers Association
Release time: .00 am on the last working day of the month
Frequency: Monthly
Source: Chicago Purchasing Managers Association
Revisions: One year
A Purchasing Managers Index (PMI) is an economic indicator; it is a composite index based on five major indicators including new orders, inventory levels, production, supplier deliveries, and the employment environment. Each indicator has a different weight and the data is adjusted for seasonal factors.
How important is it?
One key area of the report is growth in new orders, which predicts manufacturing activity in future months. Should this PMI report an unexpected change, dramatic reactions automatically follow at the stock market. The Chicago PMI report is an extremely important indicator for the financial markets as it is the best indicator of factory production. The index is popular for detecting inflationary pressure as well as manufacturing economic activity, both of which investors pay close attention to. The PMI is not as strong as the CPI in detecting inflation, but because the data is released one day after the month, it is very timely hence quite relevant in making future investment decisions. The Chicago PMI index is perceived by market traders to be a good leading indicator for the ISM, which typically affects the financial markets largely.
How is it computed?
The Institute of Supply Management produces the report. It is an opinion survey and relies on people’s perceptions, not data. It also does not capture any technology improvements or increasing production efficiencies that might alter expectations and actual results. The survey captures opinions of over two hundred purchasing managers in the manufacturing industry in the Chicago Federal Reserve Region. This region covers Illinois, Iowa, Indiana, Michigan and Wisconsin areas since this was the region considered to represent the U.S. manufacturing industry. A PMI index over 50 indicates that manufacturing is expanding while anything below 50 means that the industry is contracting.
How does it affect the forex rates?
The right balance of international trade generally influences forex rates. Although the report may not immediately result in forex rate changes, it may eventually affect forex in the long term together with a combination of other factors. Supposing the report indicates a sharp decline in purchases of manufacturing raw materials, the result may be a massive decline in production activity in the days to come. A decline in production automatically translates into a decline in exports, which will eventually reduce the country’s forex reserves especially if the decline in local production may force the country to rely on imported products to meet the local population’s demand. This scenario may not only affect the forex rates but also the general growth of the economy as a whole.
On the other hand, if the report indicates an increase in manufacturing material purchases, the economy is on the growth path and the effects can be visible within the next few weeks. This means an increase in production and most probably, exports will increase too leading to high forex reserves that will eventually strengthen the dollar against other international currencies. This correlation with other indicators may make it an influencing factor in the making of monetary policies. Since it actually acts as a prediction of the ISM index, it has a great influence on the Federal Reserve Bank’s short-term changes in interest rates.
How does it affect the stock market?
The effect of this index on the stock market cannot be underestimated. Investors always need to have an insight into possible future occurrences in the sectors they invest in; there is no better way of doing this other than by having a glimpse at the upcoming orders that have been made by purchasing managers in these sectors. This is because the orders can clearly give a clear picture of what to expect in the near future. If the index indicates a possible decline in economic activity due to fewer orders, investors may be very swift at moving their holdings in a bid to try to safeguard their stocks from losing value in the anticipated decline. This may lead to sudden price changes on the particular shares perceived to be headed for a decline in performance. Since it comes a day prior to the release of the ISM, if it predicts an unexpected change in the ISM, it is likely to spark off massive activity as investors try to act in response to its indication.
Subscribe to:
Posts (Atom)
 |
| Provided by website hit counters hit counter gallery. |