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Economic indicators are scheduled pieces of economic data and metrics that help investors and analysts to interpret the current and possible future state of the underlying economy.
By providing information about an underlying economy, fundamental indicators can also help investors to determine the fair value of relevant financial assets.
There are three main types of economic indicators: leading, lagging and coincident indicators.
- Leading economic indicators, such as the level of manufacturing activity usually change before the economy changes (they ‘lead’);
- Lagging indicators, such as GDP, usually change after the economy has changed (they ‘lag’);
- Whereas coincident indicators, such as the unemployment rate, usually change around the same time that the economy changes.
There are numerous economic indicators scheduled for release on a daily, weekly, monthly, quarterly and annual basis.
Economic indicators are some of the major catalysts of price movements in the financial markets. It is, therefore, important to track these events to be able to not only take advantage of arising opportunities but to also reduce risk exposure when volatility increases in the markets around such times.
This is why the Economic Calendar is an important tool for every financial market trader. The tool is a detailed calendar that lists all important economic data releases and events that will have an impact on various assets as well as the underlying economy.
A detailed explanation on how the market will be impacted by the event is also highlighted, as is the previous, forecasted and actual data released.
Most investors will usually trade the actual release in relation to the forecasted figure. If the actual release is better than expected, there will be demand for the underlying asset; whereas an actual release that misses the expectations will boost supply.
The Economic Calendar lists numerous economic indicators daily. Nonetheless, here are some of the most impactful economic indicators in the global financial markets:
Interest rates are the main tools of the central banks to control the national economy. The primary goal is to facilitate optimum economic conditions in accordance with the monetary policy goals.
Gross Domestic Product (GDP) is the total value of goods and services produced in a country. It is calculated periodically, usually on a quarterly or yearly basis, to measure how the economic value of the local production activities is changing over time.
The Unemployment Rate is the percentage of the unemployed in the total workforce of a country. The total workforce is comprised of three categories: payroll- or contract-based employees, self-employed, and unemployed. People who are not employed but also ineligible to work (e.g., children and elders) are excluded from the workforce count.
Consumer Price Index (CPI) is the main economic indicator that is used to track the inflation rate and the cost of living in a country. It comprises a basket of goods and services and calculates the basket price as a weighted average of the constituent items’ retail prices.
The Balance of Trade (BoT) is the difference between the total value of exports and the total value of imports of a country within a time period. It is also referred to as trade balance, commercial balance or net exports (NX). The Balance of Trade shows whether the country had achieved to sell locally produced goods and services to foreign countries (export) more than it bought products from abroad (import) in the focused period.
Analysts use the Building Permits data in conjunction with other prominent housing market indicators such as Housing Starts, Construction Spending, New Home Sales, and Existing Home Sales. A harmonised analysis allows drawing conclusions on the growth or stagnation of the housing market. These indicators can then be used in fundamental analysis of long-term sentiment.
Considering that most people rely on employment to make a living, income and wage reports emerge as fundamental measures to gauge the purchasing power of the citizens of a country.
As the private sector represents a significant portion of a country’s economic production and employment, its well being is vital for the national economy. Thus, the economic bodies track the private sector performance closely and make sure corporate profits are growing to enable further expansion.
As a country’s top administrative body, the government is responsible for cultivating the economy and deciding on how to handle the money-related economic operations. A government’s economic operations include the management of national revenue, national expenditure, and public investments as well as the facilitation and regulation of employment, business, financing, investments in the private markets.