ECONOMIC REPORTS: THE MARKET MOVERS
Here are the five economic reports that shape the markets.
Consumer Price Index
The index, the most widely used indicator of inflation, measures the weighted average of prices of a basket of goods and services. It is computed by getting price changes for every item in the basket and averaging them. Changes in the CPI are used to evaluate price changes relative to the cost of living. When CPI largely rises in a short time period, there is inflation. Conversely, when it hugely declines, deflation is taking place.
CPI, reflecting the purchasing power of consumers, is also used to adjust Medicare, pensions, and other cost of living gauges, as well as certain Treasury rates.
All eyes and ears are on the Federal Reserve, especially during their policy meeting or when they release the minutes of their recent meeting. Traders monitor any rate announcements, quantitative easing, and the like. In most cases, any new information from the central bank enormously affects the market.
Released every first Friday of the month, the nonfarm payroll represents the total number of paid US workers, excluding employees in the government, farms, nonprofit organizations, and private households.
The unemployment rate is reported alongside the NFP report. Economists, investors, and the government look into both figures to assess the overall condition of the American economy. Although some doubt the credibility of the data, the two reports can make the market move in any direction. Market participants, especially those in the currency market and the stock market, often anticipate its movement days before the data release.
Producer Price Index
The PPI gauges the average price for selling products, reflecting the health of the wholesale or producer market. Looking from a seller’s point of view, what a buyer pays for a product against what a seller receives is not the same due to distribution costs, government subsidies, and sales and excise taxes. Since the index is issued only a few days before the CPI, traders consider this data a predictor of the CPI as producers who are paying higher prices will pass it on to the consumers.
S&P/Case-Shiller Home Price Indices
The index trails the changes in home prices in the United States, which are based on a constant level of data on properties that have undergone at least two arm’s length transaction. Case-Shiller measures the average selling prices of houses in different areas of the country and the national average.
The data, reflecting the overall state of the real estate market, is used by the Chicago Mercantile Exchange for pricing housing futures and options. However, some investors stipulate the index is an inaccurate representation of home prices. Some markets, including Los Angeles and New York City, are so colossal that more than one real estate market may be present.
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