• W. Stansbury Carnes and Stephen D. Slifer. The Atlas of Economic Indicator: A Visual Guide to Market Forces and the Federal Reserve. Harper Business: New York.1992.
• R. Mark Rogers. Handbook of Key Economic Indicators. McGraw-Hill: New York. 1998.

This report includes the widely reported unemployment rate and the even more important nonfarm payroll data. From these figures come data used to estimate industrial production, personal income, and even some minor series in gross domestic product estimates. It is usually released on the first Friday following the end of a month by the U.S. Department of Labor, Bureau of Labor Statistics (BLS).

Because of its early release date, its use in estimating other indicators, and its broad coverage of the many sectors in the economy, the employment report is seen as setting the tone for other reports for the month and their likely impact on financial markets. It provides particularly important clues about consumer spending, since job creation is a key source of growth in personal income.

The employment report actually contains data from two separate, independent surveys. The establishment report - also called the payroll survey - is conducted as a mail-in survey by the BLS and is basically a job count based on employers' records. This survey also includes questions on earnings and hours worked. From another perspective, the Bureau of the Census conducts the Current Population Survey (CPS) as a survey of households. This survey, which is often referred to as the household survey, measures job statistics from the workers' perspective and provides data on the work status of individuals in interviewed households.

A release that shows increasing employment is generally seen as bullish for the economy, and the markets respond in kind. However, when the unemployment rate falls below certain levels, the markets get jittery about inflation.

The reasoning is that as the available labor pool shrinks, the cost of hiring and employing people will rise. Higher labor costs mean higher costs of production, which mean higher inflation. Higher inflation, in turn, means lower bond prices and higher interest rates. And higher interest rates are bad for stocks, as well.

This level of full-employment is known as the nonaccelerating inflation rate of unemployment, or NAIRU. When the jobless rate falls below NAIRU, some believe inflation will increase. This rate is thought to be about 6.0 percent. The problem with this logic is that inflation often hasn't increased when the rate was below NAIRU. In fact, no : correlation exists between the two.
 
 

Retail sales series is probably the most closely followed indicator for assessing the strength of the consumer sector. As its name implies, the report measures sales at the retail store level. Often viewed as measure of the overall economy, it surveys a wide variety of outlets-from auto and gas stations to drugstores and supermarkets. The data is released monthly by the Commerce Department and is subject to extensive revisions. It first comes out in what's called the Advance Monthly Retail Sales. This release usually comes two weeks after the end of the month and contains sales data only. The advance figures are based on about 3,250 establishments, while later revisions are based on about 12,500.A lower-than-expected retail sales figure would be seen as indicating a weak economy and possible Fed easing and, hence, higher bond prices.
 
 

Unit car sales tell us the number of cars that were sold during a particular ten day period. No other indicator is as timely because none is released during the course of that same month. Car sales have a second great strength. They can provide us with an important clue concerning the retail sales and personal consumption expenditures (PCE) data that will be released later in the month, both of which can be big market movers. Automobile sales represent about 20% of retail sales and about 6% of consumption. Car sales have a third important feature. They can give us an early warning of an impending recession, and tell us when we can begin to expect a recovery. The reason is that car sales are very sensitive to changes in interest rates and consumer psychology.

In summary, the car sales data are extremely important to the markets because of the following:

1.They are timely.

2.They help us to estimate other indicators that will be released later in the month.

3.They are generally a leading indicator of economic activity.
 
 

Personal Income and Consumption Expenditures are published by the Bureau of Economic Analysis of the U.S. Department of Commerce on the 22nd-31st of each month.  Consumption expenditures is important because it represents over one-half of GDP and represents the market value of all goods and services purchased by individuals.  If we know what is happening with consumption, there is no doubt that we have a few strong hints about what will happen to GDP growth for that quarter.  Personal income represents the compensation that individuals receive from all sources. There are two measures of income,  nominal and real, and they are considered good barometers of the current strength of the economy.

A good indication of consumers willingness to spend is the savings rate.  The savings rate is the difference between disposable income and consumption, divided by disposable income.  It is worthwhile to keep an eye on the savings rate as an indicator of shifts in consumer spending patterns. A sharp drop in the savings rate indicates that the consumer is dipping into savings to finance purchases.  This is not a sustainable situation, and one should expect to see slower consumption and GDP growth in the months ahead.

Economists formulate their forecast about PCE from a variety of sources: data on car sales, retail sales report, estimates of expenditures on services.  Fortunately, spending on services tends to be relatively stable and somewhat easier to predict. Strong gains in income and consumption will produce a sell-off in the bond market, and the stock market will usually rally along with the dollar.
 
 

The Consumer Price Index is published by the Bureau of Labor Statistics of the U.S. Department of Labor on the 15th-21st of each month.  The CPI is widely regarded as the most important inflation measure.  It is used as a tool for analysis for both monetary and fiscal policy. There are two CPIs: the CPI-U and the CPI-W.  The CPI-U relates to all urban workers which covers about 80% of the civilian population.  The CPI-W, which relates to wage earners and clerical workers, is much smaller and covers about 40% of the population. The CPI-U is the most important and the one that receives the most attention.  However, the CPI-W is used in collective bargaining and Social Security cost-of-living adjustments.  Economists concentrate on the CPI excluding food and energy because of their volatility. Economists want to determine changes in the trend rate of inflation and do not want to be distracted by temporary changes in the market.
 
 

The Producer Price Index is a monthly report published by the Bureau of Labor Statistics of the U.S. Department of Labor on the 9th-16th of the month. The PPI is a measure of prices at the producer level and is the first inflation report issued each month.  The most important concept to remember is that the PPI is an index of commodity prices.  In contrast, the CPI measures the prices of both commodities an services.  Another difference between the CPI and PPI is that the PPI measures, in part, the cost of capital goods purchased by businesses.  When looking at PPI figures one should consider a variety of a approaches: (1) compare the most recent month to the prior two or three months, (2) take a look at a moving average of PPI releases for the past six or twelve months, or (3) determine year-over-year inflation rates. It is better to identify a trend and decide whether or not a new direction is under way.

A higher than anticipated rise in the PPI is bearish for both bonds and stocks. Faced with high inflation, bond buyers will demand an "inflation premium" since their coupon income is worth less in real terms.  The bond's principal, to be paid back at maturity, is also worth less.  The inflation can also be bad for stocks.  Future earnings and dividend income are both subject to the same loss of purchasing power as coupon income is, security prices will adjust downward. If the Fed is likely to tighten because of a bad inflation report, the dollar could actually rise.  If inflation is a problem but the Fed is unable to tighten, then a series of poor inflation reports "devalues" the dollar, causing it to fall in foreign exchange markets.
 
 
 

Housing Starts/Building Permits data are published by the Bureau of the Census of the U.S. Department of Commerce on the 16th-20th of the month. This is a leading economic indicator and can be quite volatile, particularly during winter months. Housing starts is an extremely important indicator when forecasting the economy because most economic turnarounds in the post WWII period have been precipitated by changes in household spending habits. Invariably, these changes become apparent first in the housing and automotive sectors of the economy.  This is due to the facts that they comprise a large percentage of consumer income and because these purchases are tied to the consumers expectations.  The housing sector accounts for 27% of investment spending and 5% of overall U.S. economy. A sustained decline in housing starts causes the economy to slow down and possibly head into a recession. Likewise, a sharp rise in starts accomplishes the opposite.  It is also important to remember the multiplier effect that takes place because of a change in demand for housing-related durables. Changes in housing starts are usually triggered by changes in interest rates, especially mortgage rates.  Housing starts are divided into single-family and multiple-family categories. Construction of single-family houses is regarded as a better indicator of future economic trends, mainly because it is less volatile.

Building permits are released along with housing starts. Since permits are such a good indicator of future economic activity, the Commerce Department includes this series in its index of leading economic indicators.
 
 
 

Durable Goods Orders are published by the Bureau of the Census of the U.S. Department of Commerce on the 22nd-28th of each month.  In the durable goods market it seems to be either feast or famine.  There is no question that these are the most volatile of all the leading economic indicators.  Durable goods orders are quite volatile because they include civilian aircraft and defense orders.  To be useful, the following changes should be made to durable goods data:

• Exclude defense orders,
• Exclude transportation orders,
• Calculate a three-month moving average, and
• Calculate year-to-year percent change.

Industrial Production and Capacity Utilization is published by the Board of Governors of the Federal Reserve System on the 14th-17th of the month.  This data tells us what is happening in the manufacturing sector. There is a strong correlation between production and GDP.  Production data measures changes in the quantity of output as opposed to the dollar volume of that production.  With production data we are seeing a "real" increase or decrease in output.  Economists use this information to estimate GDP called "production-based" estimates of GDP.  The important point is that the industrial production data enhance our ability to project GDP growth for that quarter.

The Fed also provides an estimate of capacity utilization that measures the extent to which the capital stock of the nation is being employed in the production of goods.  Like production, the utilization rate rises and falls in sync with the business cycle (coincident economic indicator).  High utilization rates can be inflationary.  As demand increases relative to supply, there is a tendency for prices to rise.  If the utilization rates rise above 82-85%, producer prices inevitably rise. Specialists focus on the utilization rate for primary-processing industries such as raw steel, paper, textiles, chemicals, rubber, and plastics because late in the business cycle the combination of inventory shortages and rising demand for consumer and capital goods conspire to create price pressures in many of these industries. Capacity utilization is the ratio of the index of industrial production to a related index of capacity.  The Fed has decided that it does not want to measure peak output. Rather, it attempts to decline a realistically sustainable maximum level of output.  It defines capacity as the maximum level of production that can be obtained using a normal employee work schedule, with existing equipment, and allowing normal downtime for maintenance, repair, and cleanup.
 
 

The Business Inventories Report is one of the last major monthly indicators to be released each month.  The data reflect inventory conditions two months earlier.  Inventories reflect the relationship between sales and production. Unplanned declines in inventories lead to higher output while unplanned increases lead to cutbacks.

Similarly, inventories play a key role in the calculations of gross domestic product. The monthly inventory data are used to figure the inventory investment component of Gross Domestic Product. This series has the greatest quarterly volatility of any GDP component.

The markets treat inventories as a proxy for the health of the economy insofar as manufacturing is concerned. As business stockpiles mount, the need for further production decreases. Production lines may slow or be stopped.  A slowing production base is seen as meaning a slowing economy, which could lead to Fed easing, and higher bond prices.
 
 

The purchasing managers' index is a composite index based on data from a monthly report, The Report on Business, compiled and released by the National Association of Purchasing Management (NAPM) based in Tempe, Arizona. This is one of the few significant reports compiled by an agency outside the government.

There are two reasons for this: its broad coverage of the manufacturing sector and its timeliness. The NAPM report is released the first business day following the month it covers and is used by analysts to help project government-produced economic indicators related to manufacturing/industrial production in particular.

The purchasing managers' index is based on data from a survey mailed to about 300 NAPM members. The survey is mailed by mid-month and responses are tallied around the 21st.

Survey members are asked to provide information on various facets of their firm's manufacturing activity. Questions cover five key categories: production, new orders, inventories of purchased materials, employment, and vendor deliveries. For most categories, the possible answers essentially are equivalent to "better," "no change," or "worse." For vendor performance, replies are in terms of "faster," "same," "slower."  For supplier deliveries, slower is a positive for this component.

By the NAPM's own definition, an overall index above 50 indicates an expanding manufacturing sector, and a number below 50 suggests a generalized contraction. As such, the index does not report precise levels of activities but instead indicates whether a given month is better or worse than the preceding one.
 
 

The index of leading economic indicators is published by the Bureau of Economic Analysis of the U.S. Department of Commerce on the last business day of each month. this index tells us when the economy is about to change direction. The Index of LEI, a composite of several different indicators, is designed to predict future aggregate economic activity. Turning points in the economy are signaled by three consecutive monthly LEI changes in the same direction. A decline in LEI is a necessary, but not a sufficient, condition for an economic downturn. It should be noted that the LEI has performed better at business cycle peaks than troughs.  The LEI's individual components were chosen because of their economic significance, statistical adequacy, consistency of timing at cycle peaks and troughs, conformity to expansions and contractions, smoothness, and prompt availability.  The LEI include the following:

• Average workweek-manufacturing
• Initial unemployment claims
• New orders for consumer goods
• Vendor performance
• Plant and equipment orders
• Building permits
• Change in unfilled orders-durables
• Sensitive material prices
• Stock prices, S&P 500
• Real M2
• Index of consumer expectations

The gross domestic product is the broadest measure of economic activity. GDP figures are published by the Bureau of Economic Analysis, U.S. Department of Commerce, on the 21st-30th of the month.  Real (or inflation-adjusted) GDP is defined as the output of all goods and services produced by labor and property located in the United States.  This series generally lags other indicators' release dates. As such, other indicators build up to the market's anticipation of how the GDP numbers describe the state of the economy.

Real GDP is important because it's the most detailed of indicators. Both income and spending are reflected. So are durable and nondurable goods, construction and services. Price data by sector are also available.

Real GDP is reported quarterly. First comes an initial advance estimate. Then the government revises the data in two subsequent reports. For instance, the first-quarter advance estimate is released in April, with subsequent revisions in May and June. In July, the advance second-quarter estimate is released, and so on.

The average sustainable growth rate for real GDP appears to be somewhere between 2.5% and 3%.  While the United States has periodically enjoyed growth rates in excess of 6%, expansions of this size are usually short-lived.  The main reason that the expansion is short-lived is inflation.

GDP is a measure of production within the national income and product account.  There are three ways to derive GDP: the sum of all expenditures (C+I+G+(X-M)), the sum of all incomes, and the sum of all value added by businesses. In theory, GDP as measured by all three methods should be the same. This would be the case if perfect data were available. In practice, it's easier to get reliable estimates for spending than for income. Basically, spending is measured more directly than income.

Along with GDP, the Commerce Department estimates two price deflators: the implicit price deflator and the fixed-weight deflator. The implicit price deflator measures a combination of price changes and changes in the composition of GDP. The implicit price deflator is not a pure measure of inflation. If prices are absolutely unchanged between one quarter and the next, but GDP is composed of more high-priced goods in the later quarter, the implicit deflator will register an increase.The fixed-weight deflator is a pure measure of inflation. It is not tainted by changes in the composition of GDP. In terms of coverage, the fixed-weight deflator is the most important inflation measure that exists. The fixed-weight deflator is strictly a domestic inflation gauge. It does not measure changes in the prices of imported goods and services; therefore, it can underestimate the true rate of inflation.
 
 

Published by the Bureau of the Census of the U.S. Department of Commerce on the 30th-6th for two months prior, the factory orders report is important because it contains data on orders and shipments of nondurable goods, manufacturing inventories, the the inventory/sales ratio.  Furthermore, this report frequently contains significant revisions to the durable goods data. The most important points are the following:

• Orders data are useful because they tell us something about the likely pace of production in the months ahead;
• They are extremely volatile and can fluctuate by three or four percentage points in any given month;
• They are subject to sizeable revisions; and
• They are very difficult to forecast.

Because the changes in this report are generally well-anticipated, the stock market and the dollar are rarely affected in any significant way.
 
 

There are three measures of the money supply: M1, M2, and M3. The narrowest measure of the money supply is M1 which includes currency in circulation and demand deposits. M2 includes M1plus time deposits less than $100,000. M3 equals M2 plus large denomination time deposits. The most important of these as an economic indicator is M2. This financial indicator leads the economy for several reasons. In the short run, a rise in the real money stock will typically lower interest rates and stimulate demand for durables both for consumers and businesses.  Lower interest rates also boost housing sales.For businesses, inventories are cheaper to finance, and this increases demand for goods.  Eventually, production increases and income rises to give further support to the economy. If the money supply declines, interest rates typically increase and have effects to the opposite of the above.  Nominal money supply data are produced by the Federal Reserve Board of Govenors and are deflated by a chain-type PCE deflator from the BEA.
 
 

The monthly report on international trade, published as the U.S. International Trade in Goods and Services, is important because it is the most timely publicly available data on the U.S. foreign trade sector. The data is viewed as important by the financial markets because they reflect the strength of domestic demand for imports to the U.S. relative to foreign demand for exports of U.S. goods and services. In turn, perceptions of the strength of these trade flows affect the value of the dollar and other currencies in foreign exchange markets.

The flow of goods through the foreign sector also helps to determine how much changes in domestic demand impact changes in domestic production. In other words, if domestic demand is rising but a greater share than in the past is being met with imports, then gains in domestic production will lag import growth. Similarly, if foreign demand for U.S. products is riising faster than domestic demand, then U.S. production would likely rise more rapidly. In a world economy that is becoming more integrated, these considerations are of growing importance.

As foreign exchange markets react to changes in the international flow of goods and services, money and credit markets move also. For example, if the dollar depreciates owing to a rapid buildup in imports, then (assuming no other factors change) U.S. interest rates are bid higher by foreign holders of U.S. currencies. This is to offset their losses in asset values from dollar depreciation. Dollar depreciation is also generally associated with a near-term rise in price levels due to higher import costs and less competitive price pressure on domestic producers.

In contrast, if there is a strong upward trend in export growth for the United States, then one would likely see the opposite effects. Over time, the dollar would appreciate, and eventually imports would become cheaper, inflation pressures would ease, and U.S. interest rates would decline--at least relative to foreign rates. These scenarios are generalized, but in sum, changes in international trade trends can have significant effects on domestic production and employment. Changes can also occur in exchange rates, interest rates, and even long-run inflation rates, although international financial flows generally overwhelm the effects of real trade flow.
 
 

Financial market analysts often focus on measures of labor cost because labor costs are a significant portion of the production costs of most goods and services; essentially, labor costs are viewed as indicative of inflation pressures. Productivity is often viewed as an inflation indicator since it has an inverse relationship to unit labor costs: higher productivity implies lower unit labor costs. Productivity is also important as a long-term determinant of wages. Firms are willing to pay a wage that is commensurate with labor productivity, and as productivity rises, so does labor's earnings capacity. The two broad measures of labor costs are unit labor costs and the employment cost index. Unit labor cost data are part of the same report in which productivity data are released.

The productivity and unit costs report contains data on a quarterly basis, produced by the Bureau of Labor Statistics. Data are released and revised eight times a year and are published in the report "Productivity and Costs". Productivity is a measure of output relative to some input measure. Therefore, productivity is the ratio of output to a unit of input. Productivity is usually in reference to a unit of labor input, for example, hours worked. Analysis of productivity is almost always in reference to labor productivity. However, there is a relatively new measures of productivity known as multifactors productivity--that is, output compared to combined units of inputs.

Long-term trends in productivity reflect a variety of underlying trends, including:

• Technological improvements in production processes
• Increases in capital per worker
• Improvements in workers' skills
• Improvements in efficiency of production
• Increases in the share of output in "higher-productivity" industries

The following is a list of websites that can provide the researcher with additional economic information. Most of these sites are sponsored by private sources such as business periodicals and financial institutions.  Although some of these sites require a registration fee for full access, they still provide a great deal of free information.

• Dr. Ed Yardeni's Economics Notebook: Dr. Yardeni is the Chief Economist and Global Investment Strategist of the Deutsche Bank Securities in New York. The site provides a wide variety of information on national and global economics. It provides portfolio strategies, markets briefing, earnings forecast, economic indicators, online chart rooms, monetary and fiscal policies, economic and political history, and access to other internet resources.
• Investor's Business Daily: The IBD is designed to provide both concise and comprehensive coverage of business, financial, economic, and national news.
• EconData: This is a source of detailed historic U.S. and international economic indicators.
• Economic Information Systems: Historical economic indicators translated into tab-delimited files and software systems for analyzing and forecasting data. Economic Information Systems was formerly known as National Economic Research and Data Services, specializes in translating economic data from government sources into formats easily read by spreadsheet and charting programs. It offers free analysis of national, state, and economic trends.
• WebEc: WWW Resources in Economics: With its approximately 30 categories of links covering everything from Economic History to Mathematical and Quantitative Methods, WebEc is one of the most useful listing of economic information on the internet.
• The Wall Street Journal: The Wall Street Journal is perhaps the best known and most often read source on information for business and economic news. Although the WSJ Interactive is only available for a fee, many articles are available.
• CIA Factbook:  To research the economy, or anything else, of a particular country, the CIA Factbook is an excellent source of information.
• International Links:  A site provided by the National Association of Business Economists, this site provides information about international economics.
• Macro Links: This site, provided by the National Association of Business Economists, is a great link to non-financial data. Most of the important economic indicators can be accessed through this site.
• Federal Reserve Banks:  This site provides easy access to all Federal Reserve Banks and the Federal Reserve Reading Room.
• WWW.lib.lsu.edu/gov/fedgov.html: This site is from Lousianna State University and provides a complete listing of all government department, agencies, bureaus, etc.
• Overview of the Economy: This is a site provided by the Department of Commerce, Bureau of Eaconomic Analysis and provides an overview of the U.S. economy with most economic indicators draw from other agencies.
• Xenon Labs: This site provides current exchange rates and a currency converter.
• Economists.com: Economists.com is an economic and financial consulting firm that provides services to both public and private sector clients, ranging from municipal, state, and federal governments to Fortune 500 corporations.  Clink on Economic/Financial Research Sites for a lot of information.
• The Dismal Scientist: One of the best sites out there for economic research. Tons of stuff!!
• EconEdLink:  This site is aimed at students doing economic research.  It includes an updated index, an explanation of economic indicators, and links to other economic related sites.
• Inomics.com:  This site can be used to investigate topics related to supply and demand and to other economic models.
• Bizsports.com:  This site is devoted to economic issues surrounding (mainly) professional sports.
• "Economic Report of the President":  This is an invaluable source of information on current economic policy.  It also contains useful data tables.
• Foundation for International Business and Economic Research:  This site maintains a rich set of information regarding transmission of economic fluctuations.
• Professor Nouriel Roubini:  Professor Roubini's site is devoted to global financial crises.
• Citizens Guide to the Budget:  Numerous, easy-to-read charts and graphs indicating sources of revenue and the types of spending.
• Budget Game:  Try your hand at a short game version of the budget. Descriptions of each category of spending can be found by clicking on the words to the right.
• History of Money:  View pictures of the types of currency used throughout U.S. history.  For an informative history of money in America, follow the "Tour Historical Context" link.
• History of Money:  The history of money by Glyn Davies.
• Federal Reserve System:  This site provides a very readable overview of the Fed's structure and operations.  Peek inside the gold vault.  Investigate other links.
• Federal Reserve Open Market Committee:  This is the Fed's online brochure on the Federal Reserve Open Market Committee.
• Bloomberg.com:  This site provides quick links to the latest key interest rates and currency exchange rates.  It offers numerous other resources. Investigate.
• Economist:  Interviews with Nobel prize winners and other noted economists.
• Policy.com:  The sites provides daily news headlines and links to other on-line resources organizedby issue and group.
• International Trade:  What goods and services does U.S. trade? With whom? Who are our largest trading partners? Answer these and other trade-related questions through the U.S. Census Bureau's Trade Data Web.
• World Trade Organization:  This web site describes its role and functions and explains the value of reducing trade barriers.
• Institute for International Economics Policy:  Articles and briefs that discuss the impact of the impact of the Asian crisis on other countries.
• Brookings Institute:  The opinions and views of economists working for the Brookings Institute as published in the institute's magazine.
• Asian Financial Crises:  Yahoo, an online search engine, maintains a page devoted to the Asian financial crises.
• The Euro:  This is aa website devoted to the introduction of the euro.  Review the latest developments in the introduction of the euro.