A guide on the most important economic indicators that traders focus on
Every day, the financial market move up and down. There are many causes of these movements: we turn to technical indicators which help us make better decisions; We also turn to fundamental analysis, which help us to make decisions based on the underlying economy.
Here we want to look for the most important economic indicators that you must always focus on when making trading decisions.
For example, when the inflation of a country like US moves higher than expected, investors tend to buy the USD in anticipation of higher interest rates. While there is a lot of economic data released every day, all the numbers are usually not the same.
This article explains a few of the main market-moving economic indicators that you should always pay close attention to.
→You may also like Why the Economic Data Matters to Traders
Manufacturing and Service (PMI)
The PMI (Purchasers Managers Index) is an important data because it measures the activities of the purchasing managers. If their activities increase in a given month, it is an indication that the manufacturing and services sectors are doing well.
Every month, the data from most countries is released by Markit (here the latest) and other research firms. As a trader, you should pay close attention at the PMI numbers of countries like China, US, and Germany.
Politics are very important because it is politicians who are tasked with making major fiscal decisions. They make decisions on government spending and many other issues.
Therefore, when there is an election, traders should always pay close attention. In addition, when a major politician makes a major decision, traders should listen.
For example, when Trump says he will exit NAFTA, traders should listen because the president has the powers to exit such trade agreements.
An economy that is doing well is one whose labor market is tightening. For this reason, you should always pay close attention to the employment numbers of a country.
These numbers are usually released every month.
For the US, they are released every first Friday of the month. In these numbers, you should focus on the headline number that shows the number of people who were employed. You should also look at the unemployment rate, participation rate, and productivity rate.
→ Why the Job Reports Matter
Housing is so important because of how people from around the world value having a home. As such, most people will always do whatever it can to get a home. Since houses are usually expensive, most people usually take loans.
Therefore, if the housing sector is vibrant, it should be a sign that the economy is doing well. As the housing sector slows down (and prices fall), it is a sign that all is not well.
The Gross Domestic Product is a very important number because it shows the growth or slowdown of an economy. A country whose economy is growing means that more people are working and wages are growing as well.
Therefore, its currency is likely to do better than one that is not growing.
Inflation is one of the mandates of the Federal Reserve and other central banks. For the Fed, the other mandate is to ensure that there is full employment.
When inflation rises a lot, the central banks tend to react by rising interest rates. This helps curtail the excessive lending. When the rate of inflation is so low, the bank reacts by lowering rates, which tends to support spending.
There are a number of measures of inflation that you should focus on, among others:
- consumer prices index (CPI)
- producers purchasing index (PPI)
- consumer spending
- consumer confidence levels
Therefore, you should always look at the inflation numbers.
This number is very important because of the importance of retail in all economies. This is a sector that employs the most people in all economies. It is also an indirect measure of inflation. Therefore, you should pay close attention to the retail sales numbers released once every month.
Crude Oil Data
While data on all commodities is released every month, none is usually more important than that of crude oil. This is because of the central role crude oil has on the global economy.
Every month, you will receive data on the crude oil inventories and the production rate by OPEC and other producers. As a trader, you should always look at this indicators and analyze its impacts on the economy.
→Have a look into Four Reasons Why Crude Oil Price is Rising