BASIC ECONOMIC INDICATORS

CPI - Consumer Price Index

The Consumer Price Index measures how much or how little the price of goods and services in a consumer basket has changed over a period of time.

This CPI is most often tracked in investment practice in relation to the US dollar, however, its values are used in individual state economies as an indicator used to calculate inflation rates.

Why is it important to track the CPI?

Its importance lies in the fact that consumer prices make up the majority of overall INFLATION, and it is inflation that is important for currency valuation. Even a slight change in the CPI (as little as 0.2%) can cause relatively large fluctuations in exchange rates.

2) PPI - Producer Price Index

The PPI or Producer Price Index tells us how the price of goods produced by domestic producers for the domestic market has changed.

The index includes all stages of production of goods, all areas of manufacturing and agriculture, the price of domestically produced raw materials, imported raw materials, finished goods and semi-finished goods. It therefore only covers goods that are intended for sale in the country and not for export.

The indicator also includes food prices or prices in the mining and manufacturing industries. The PPI is monitored for different sectors and industries such as the construction price index, the agricultural producer price index or the industrial producer price index. It is generally considered that the evolution of the PPI is predictive of upcoming changes in the CPI. The PPI is released once a month (around the 16th of the month) by the country's statistical office along with the CPI.

The main difference between the CPI and the PPI is that the PPI does not include prices of services, unlike the CPI, and provides data on price change exclusively at the primary wholesale level, whereas the CPI focuses only on the final consumer.

The release of fundamental news in the form of the PPI index also has a high impact on the volatility of the investment instrument. Sometimes extreme price movements can be caused by the announcement of a revision to the PPI for a previous period. The market reaction to this event is shown in the figure above.

3) PMI - Purchasing Managers Index

The PMI is based on a monthly survey of supply chain managers in 19 industries.

It is aleading indicator of a country's economic health. The PMI is also a useful indicator to inform about the health of a sector's economy and unlike GDP, it is published monthly (GDP is published quarterly).

Due to the high level of competition, businesses are forced to react quickly to changing market conditions, giving their purchasing managers the most up-to-date and relevant view of the company's economy. The use of this index is used by companies to estimate future demand for their products, which in turn serves as a basis for investors to determine the rate of return on their investment (ROI).

ROI (return on investment) is one of the important economic variables used to determine the effectiveness of a business activity. The value of the indicator determines the ratio between the costs incurred and the profit that should result from a given activity.

4) NFP - Non-Farm Employment Change

NFP is a monthly statistic that shows how many people are employed by manufacturing, construction and commodity companies.

NFP, or Non-Farm Employment Change, reports how the number of people employed changed over the previous month, but excluding the agricultural sector (it may also be referred to as NFP - Non Farm Payrolls). The NFP report does not account for employment change in agriculture, private households, or non-profit organizations.

Average hourly earnings and unemployment rate reports are usually published together with the NFP report. Since all three of these reports are released at the same time, the resulting market reaction includes information from all three reports. Thus, it is not possible to clearly define which fundamental report moved the market or had a greater impact on the pricing of the currency pair.

Average Hourly Earnings

Average Hourly Earnings, the average hourly earnings, provides information on how the price that businesses pay for labor has changed, again excluding agriculture. It is a leading indicator of consumer inflation. When businesses pay more for labour, this increases the cost of the product or service, which usually shapes the price to the end consumer. The index is published once a month, on the first Friday of the month.

Unemployment Rate

The Unemployment Rate, the unemployment rate, is an indicator of the percentage of the total labor force that is unemployed and actively seeking employment. The number of unemployed is an important indicator of the overall health of the economy because consumer spending is closely related to labor market conditions. The indicator is released once a month, on the 8th of the month. Data are always reported backwards for the previous month.

Employment Change

Employment Change is an indicator of the change in the number of persons employed during the previous month. It is the ratio between the number of people who were employed in the previous month and the number of people who lost their jobs. The resulting value of this indicator can be either negative, i.e. more jobs were lost than gained in the previous month, or positive, i.e. more jobs were created than lost.

The employment rate is directly related to consumer spending. People are naturally more willing to spend when they are employed and, conversely, less willing to spend when they are not. The indicator of the change in employment is usually released on the eighth day after the end of the month

5) PCE - Personal Consumption Expenditures

PCE, or personal consumption expenditures, is a price index that measures the change in prices for goods and services purchased by consumers.

It is published monthly in the Personal Income and Expenditure Report or included quarterly and annually in the GDP report.

The PCE value is used to calculate the PCEPI (Personal Consumption Expenditures Price Index). The PCEPI, or personal consumption expenditure price index (often referred to as the PCE deflator), shows the price inflation (increase) or deflation (decrease) that occurs from one reference period to the next. That is, how much the price of personal consumption expenditures changes from one period to the next.

Retail Sales

The Retail Sales indicator, Retail Sales, presents changes in the total value of sales at the retail level. Retail Sales are data that track all purchases of finished goods and services by consumers and businesses. A general rule of thumb is that if retail sales are increasing, the economy is improving and vice versa.

As a result, consumers spend more money on unnecessary products and services, which increases the level of production in line with demand and therefore increases GDP. All of this can also have the effect of increasing the share price of the companies involved in this process of producing surplus items. We call these stocks cyclical stocks.

Retail sales are the primary measure of consumer spending, which accounts for the majority of total economic activity. It is always important to track other indicators along with Retail Sales because Retail Sales alone does not necessarily provide an accurate picture of government spending. For example, people may take out more loans in order to spend more. While this would indicate continued high retail sales, the level of debt would point to an impending recession. The Retail Sales indicator is released monthly, on approximately the 16th day of the month.

Themost important economic indicators are mainly the NFP report followed by the CPI, PPI and PMI index. These are economic indicators released on a monthly basis with a high impact on the financial market (red fundamental report). These indicators are monitored by investors mainly in relation to the US dollar, whose reaction to these economic indicators is decisive for the exchange rate development of other currency pairs.

Macroeconomic indicators do not only shape the exchange rate development of currencies, but their values also influence the pricing of stocks and commodities. It is a closed circle in which, on the one hand, economic results are input variables in the determination of economic indicators, but at the same time these indicators influence the costs and final price of the services and products of these stock companies.