Economic Indicators

We have created a comprehensive glossary of economic indicators from the relevant markets. While these indicators are generally applicable economic terms, some of them are specific for the country of their release. To see a definition of a term, click the box below or definition, and the definition will appear underneath.

Auto Sales

The number of cars sold during a particular ten-day period. The timeliness of this indicator (released three days after the 10-day period) makes this the most current piece of US economic data. The size of the item in question and the timeliness of the release allow auto sales to be a useful leading indicator of retail sales and personal consumption expenditures data.

Balance of Payments

Complete summary of a nation's economic transactions and the rest of the world including merchandise, services, financial assets and tourism. The balance of payments is separated into two main accounts: the current account and the capital account.

Balance of Trade (Merchandise Trade Balance)

The difference between a nation's exports and imports of merchandise. A positive balance of trade, or a surplus, occurs when a county's exports exceed its imports. A negative balance of trade, or a deficit, occurs when imports surpass exports. Rising exports add to GDP while falling imports are subtracted from it. The US merchandise trade balance has been in a deficit since the mid-1970s. Rising deficits can be reflective of increased consumption, which can be a sign of a strengthening economy.

Beige Book Fed Survey

Officially known as the Survey on Current Economic Conditions, the Beige Book, is published eight times per year by a Federal Reserve Bank, containing anecdotal information on current economic and business conditions in its District through reports from Bank and Branch directors, and interviews with key business contacts, economists, market experts, and other sources. The Beige Book highlights the activity information by District and sector. The survey normally covers a period of about 4-weeks in duration, and is released two weeks prior to each FOMC meeting, which is also held eight times per year. While being deemed by some as a lagging report, the Beige Book has usually served as a helpful indicator to FOMC policy decisions on monetary policy.

Business Inventories and Sales

Business inventories and sales figures consist of data from other reports such as durable goods orders, factory orders, retail sales, and wholesale inventories and sales data. Inventories are an important component of the GDP report because they help distinguish which part of total output produced (GDP) remained unsold. As a result, this presents us with important clues on the future direction of the economy. Before computerization allowed companies to trim inventories and use minimal stock on hand, inventory build up was indicative of falling demand and potentially a recession.

Capital Account

(now known as Financial Account) Records a nation's incoming and outgoing investment flows such as payments for entire or parts of companies (direct or portfolio investment), stocks, bonds, bank accounts, real estate and factories. The balance of payments is influenced by many factors, including the financial and economic climate of other countries. See Current Account

CBI Surveys

Britain's largest organization of business employers, aims at creating and sustaining favorable conditions for their optimal competition and prosperity. The CBI publishes monthly and quarterly surveys, on past, current and future assessments on the manufacturing and services sectors. The indexes reflect respondents' views on various items such as, output, sales, prices, inventories, and export/import orders.

Construction Spending

Construction spending measures the value of construction during the course of a particular month.

Consumer Price Index (CPI)

Measures the change in prices at the consumer level for a fixed basket of goods and services paid for by a typical consumer. Items included in the CPI reflect prices of food, clothing, shelter, fuels, transportation, health care and all other goods and services that people buy for day-to-day living. These items are divided into seven categories (housing, food, transportation, medical care, apparel, entertainment, and other), each of which is weighted by their relative importance. As in the case with the PPI, markets focus on the figure excluding food and energy items (called the core CPI) for a truer picture of inflationary forces. Since food and energy prices could fluctuate due to conditions that are unrelated to the economy-such as weather, oil supply or wars- it is important to break down the factors impacting the change in prices.

Current Account

The most important part of international trade data. It is the broadest measure of sales and purchases of goods, services, interest payments and unilateral transfers. The entire merchandise trade balance is contained in the current account. See Capital Account

Durable Goods Orders

These include large ticket items such as capital goods (machinery, plant and equipment), transportation and defense orders. They are extremely important in that they anticipate changes in production and thus, signal turns in the economic cycle. But the large size of these items (aircrafts and civilian orders) means that they present equally large changes, which makes them extremely volatile. This also give rise to sizeable revisions in the subsequent periods once more complete data become available one week later. Durable goods data are better used when omitting defense orders and transportation orders, while calculating a three-month moving average, and a year-to-year percent change.

Employment Cost Index (ECI)

Published quarterly, ECI measures changes in employment costs of money wages and salaries and non-cash benefits in non-farm industries. One of its major strengths is its ability to break down the changes in wages and benefits as part of total compensation, as well as its ability to point out the growth rate in these variables. Its superiority over other pay measures is also the inclusion of both hourly and salaried workers, and its breakdown by profession, industry and region. The ECI does not include federal government workers.

Employment Report

In the US, the employment report, also known as the labor report, is regarded as the most important among all economic indicators. Usually released on the first Friday of the month, the report provides the first comprehensive look at the economy, covering nine economic categories. Here are the 3 main components of the report: Payroll Employment: Measures the change in number of workers in a given month. It is important to compare this figure to a monthly moving average (6 or 9 months) so as to capture a true perspective of the trend in labor market strength. Equally important are the frequent revisions for the prior months, which are often significant. Unemployment Rate: The percentage of the civilian labor force actively looking for employment but unable to find jobs. Although it is a highly proclaimed figure (due to simplicity of the number and its political implications ), the unemployment rate gets relatively less importance in the markets because it is known to be a lagging indicator-It usually falls behind economic turns. Average Hourly Earnings Growth: The growth rate between one month's average hourly rate and another's sheds light on wage growth and, hence, assesses the potential of wage-push inflation. The year-on-year rate is also important in capturing the longer-term trend.

Factory Orders and Manufacturing Inventories

In many respects this report is a rehash of the durable goods release that became available a week earlier. However, the factory orders report merits review because it also contains data on orders and shipments of nondurable goods, manufacturing inventories, and the inventory/sales ratio. Order 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 are very difficult to forecast.

Gross Domestic Product (GDP)

Measures the market value of goods and services produced in a country, regardless of the nationality of the firm owning these resources. There are four major components of the GDP are: consumption, investment, government purchases, and net exports. The headline figure is the quarterly release of the percentage growth over the previous quarter (q/q) or year (y/y). The GDP report has three releases: i) advanced release (first); ii) preliminary release (1st revision); and iii) final release (2nd and last revision). These revisions usually have a substantial impact on the markets. Also see Implicit Deflator


Harmonized Index of Consumer Prices, is the official inflation measure for the Eurozone. Until June 2003, the European Central Bank's definition of price stability was HICP below 2.00% on a year-on-year basis. But in June 2003, the ECB tweaked the way it views its price stability definition to that of HICP close to 2% over the medium term. The shift in price stability interpretation from below 2% to close to 2% gives the ECB added flexibility in tacking downside price risks by securing the ability to ease monetary policy even with inflation at 2.0%.

Housing Starts/Building Permits

Starts are divided into single-family and multi-family categories. In both cases, a housing unit is considered "started" when excavation actually begins. The importance of the housing sector lies in its ability to trigger economic turnarounds, presaging changes in growth. Changes in interest rates, especially mortgage rates usually impact housing. Rising interest rates result in a decline for home sales which, which in turn produces a drop in starts. Conversely, lower rates tend to spur both housing sales and starts.


Germany's leading survey of business conditions. Published monthly by the Institute for Economic Research, one of the largest economic think tanks in Germany, the Ifo Business Climate Index is a widely followed leading indicator of economic activity known for its track record in calling economic turns in German economic growth. The index surveys over 7,000 enterprises on their assessment of the current business situation and their resulting plans for the short-term. In addition to this aforementioned headline index, there is the Current Situation Index and Business Expectations Index.

Implicit Deflator

Measures the inflationary component of the GDP report. It reflects price changes between periods and changes in spending patterns.

Index of Leading Economic Indicators (LEI)

The LEI is a composite of 10 different indicators, designed to predict future aggregate economic activity. The Index usually reaches peaks and troughs earlier than the overall economic cycle, which makes it an important tool for forecasting and planning. The LEI's individual components are selected from various sectors of the economy, including manufacturing, building, financial, retail and consumer variables. The components were chosen because of their economic relevance and statistical adequacy. They are weighted equally to provide a net contribution to the composite index. The specific leading indicators - selected from various sectors of the economy - include the following: the average work week, weekly jobless claims, manufacturers' new orders for consumer goods and materials, vendor performance, contracts and orders for new plant and equipment, building permits, stock prices (S&P500), interest rate spread of 10-year Treasury note minus federal funds rate, money supply (M2), and consumer expectations index. Markets rarely react to the LEI.

Industrial Production and Capacity Utilization

Industrial production measures the monthly percentage change in volume of output of the nation's factories, mines, and utilities. Capacity utilization measures the extent to which the capital stock is employed in production. The Federal Reserve, provider of the index, defines Capacity as the maximum level of production that can be obtained using a normal employee work schedule, with existing equipment, and normal downtime for maintenance, repair, and cleanup. This normal figure lies between 81% and 83%. A greater number may lead to higher prices (PPI), which could prove to be inflationary.


M3 Longer term and long term liquid funds such as Treasury bills, Savings bonds, commercial paper and bankers' acceptances and Eurodollar holdings of non-bank US residents.


M1 represents all currency and deposit accounts readily convertible into liquid used to carry out transactions. This consists of cash, travelers checks and checkable deposits - demand deposits, NOW accounts and credit union drafts.


This includes M1 with the addition of other liquid assets, such as small time deposits, savings deposits, overnight Repos + euro deposits (foreign currency deposits), money market mutual fund shares, and money market deposit accounts.


Includes M2 as well as broadly defined assets such as long-term deposits and larger amount deposits (greater than $100,000), and institutional money market funds.

National Association of Purchasing Managers (NAPM)

This is leading survey on US manufacturing activity, arranged by the National Association of Purchasing Management (NAPM). The report is released on the first working day of the month, providing the first detailed look at the manufacturing sector before the release of the all-important employment report. Highly valued for its timeliness and breadth of information, the headline figure is a function of six major components: prices paid; new orders; supplier deliveries; production, inventories and employment. Note that the latter three components reflect supply forces, while the former three cover demand forces. Watching the relative trend of these two groups (demand and supply) sheds light on the balance between demand and supply forces, and hence, provides insight on the Federal Reserve's policy decisions since they lend much importance to these balances. The Prices Paid component is widely watched because it assesses price pressures ahead in the sector. A figure of 50 or above indicates expansion in the sector, while a number below 50 suggest a contraction.

New Home Sales

Monthly data new home sales data are released for the nation as a whole and for four geographical areas - the Northeast, the Midwest, the South, and the West. The report also contains information on home prices, and number of houses for sale. Housing is a crucial segment of the economy because it signals changes in consumer spending patterns that are indicative of economic activity. Volatility and revisions, however, are common in the report. Personal Income and Personal Consumption Expenditures (PCE) Personal Spending, also known as PCE, represents the change in the market value of all goods and services purchased by individuals. It is the largest component of GDP. Personal income represents the change in compensation that individuals receive from all sources including: wages and salaries; proprietors' income; income from rents; dividends and interest; and transfer payments (Social Security, unemployment, and welfare benefits). The release of these two figures gives you the savings rate, which is the difference between disposable income (personal income minus taxes) and consumption, divided by disposable income. The ever-declining savings rate has become a key indicator to watch as it signals consumer spending patterns.

Producer Price Index (PPI)

Measures the monthly change in wholesale prices and is broken down by commodity, industry and stage of production. It is an accurate precursor of the important Consumer Prices Index (CPI) figure. Markets usually focus on the PPI excluding volatile food and energy items (called the core rate) for a truer picture of inflationary forces.


Quarterly measure of the change in the amount of goods and services produced per unit of input. It incorporates labor and capital inputs. The unit cost of labor component is a useful indicator of any emerging wage pressures. The importance of productivity has grown over the past few years since the Federal Reserve has begun attributing its growth trend to relatively low levels of inflation.

Purchasing Managers' Index (PMI)

The Index is widely used by industrialized economies to assess business confidence. Germany, Japan and the UK use PMI surveys for both manufacturing and services industries. The numbers are arrived at through a series of questions regarding Business activity, New Business, Employment, Input Prices, Prices Charged and Business Expectations. In addition to the headline figures, the prices paid components is highly scrutinized by the markets for evaluating pricing power and inflationary risks. Also see National Association of Purchasing Managers (NAPM)

Retail Sales

Measures the percentage monthly change in total receipts of retail stores, and includes both durable and non-durable goods. It is the first real indication of the strength of consumer expenditure. The limits of the retail sales figure, however, lie in the fact that it focuses on goods while ignoring services and other items such as insurance and legal fees. In addition, the report is stated in nominal terms rather than real, thus, not accounting for inflation. The retail sales figure is also subject to sizeable revisions, even when excluding auto sales (core retail sales).

Tankan Survey

Japan's chief business survey, compiled quarterly by the Bank of Japan. It consists of a questionnaire to manufacturing and non-manufacturing firms, both large and small. The survey consists of two major parts; the "judgment survey," asking businesses about their situation in the previous, current and following quarters on macro-economic variables, business conditions, inventory levels, capacity utilization levels and employment level. The other main part is related to "current management issues" confronting companies. The headline index is the diffusion index of business conditions, calculated by substracting the number of businesses saying conditions are "bad", from the number of businesses saying conditions are "good". Fundamental Analysis Purchasing Power Parity Interest Rate Parity Balance of Payments Model Asset Market Model

Fundamental Analysis

The two primary approaches of analyzing currency markets are fundamental analysis and technical analysis. Fundamentals focus on financial and economic theories, as well as political developments to determine forces of supply and demand. Technicals look at price and volume data to determine if they are expected to continue into the future. Technical analysis can be further divided into 2 major forms: Quantitative Analysis: uses various statistical properties to help assess the extent of an overbought/oversold currency, Chartism: which uses lines and figures to identify recognizable trends and patterns in the formation of currency rates. One clear point of distinction between fundamentals and technicals is that fundamental analysis studies the causes of market movements, while technical analysis studies the effects of market movements. Fundamental analysis comprises the examination of macroeconomic indicators, asset markets and political considerations when evaluating a nation's currency in terms of another. Macroeconomic indicators include figures such as growth rates; as measured by Gross Domestic Product, interest rates, inflation, unemployment, money supply, foreign exchange reserves and productivity. Asset markets comprise stocks, bonds and real estate. Political considerations impact the level of confidence in a nation's government, the climate of stability and level of certainty. Sometimes governments stand in the way of market forces impacting their currencies, and hence, intervene to keep currencies from deviating markedly from undesired levels. Currency interventions are conducted by central banks and usually have a notable, albeit a temporary impact on FX markets. A central bank could undertake unilateral purchases/sales of its currency against that another currency; or engage in concerted intervention in which it collaborates with other central banks for a much more pronounced effect. Alternatively, some countries can manage to move their currencies, merely by hinting, or threatening to intervene. The Basic Theories

1. Purchasing Power Parity

The PPP theory states that exchange rates are determined by the relative prices of similar baskets of goods. Changes in inflation rates are expected to be offset by equal but opposite changes in the exchange rate. Take the classic example of hamburgers. If the burger costs $2.00 in the US and 1.00 in the UK, then according to PPP, the -$ exchange rate must be 2 dollars per one British pound. If the prevailing market exchange rate is $1.7 per British pound, then the pound is said to be undervalued and the dollar overvalued. The theory then postulates that the two currencies will eventually move towards the 2:1 relation. PPP's major weakness is that it assumes goods are easily tradable, with no costs to trade such as tariffs, quotas or taxes. Another weakness is that it applies only for goods and ignores services, where room for differences in value is significant. Furthermore, there are several factors besides inflation and interest rate differentials impacting exchange rates, such as economic releases/reports, asset markets and political developments. There was little empirical evidence of the effectiveness of PPP prior to the 1990s. Thereafter, PPP was seen to have worked only in the long term (3-5 years) when prices eventually correct towards parity.

2. Interest Rate Parity

IRP states that an appreciation (depreciation) of one currency against another currency must be neutralized by a change in the interest rate differential. If US interest rates exceed Japanese interest rates then the US dollar should depreciate against the Japanese yen by an amount that prevents riskless arbitrage. The future exchange rate is reflected into the forward exchange rate stated today. In our example, the forward exchange rate of the dollar is said to be at discount because it buys fewer Japanese yen in the forward rate than it does in the spot rate. The yen is said to be at a premium. IRP showed no proof of working after the 1990s. Contrary to the theory, currencies with higher interest rates characteristically appreciated rather than depreciated on the reward of future containment of inflation and a higher yielding currency.

3. Balance of Payments Model

This model holds that a foreign exchange rate must be at its equilibrium level the rate that produces a stable current account balance. A nation with a trade deficit will experience a reduction in its foreign exchange reserves which ultimately lowers (depreciates) the value of its currency. The cheaper currency renders the nation' goods (exports) more affordable in the global market place while making imports more expensive. After an intermediate period, imports are forced down and exports rise, thus stabilizing the trade balance and the currency towards equilibrium. Like PPP, the balance of payments model focuses largely on tradable goods and services, while ignoring the increasing role of global capital flows. In other words, money is not only chasing goods and services, but to a larger extent, financial assets such as stocks and bonds. Such flows go into the capital account item of the balance of payments, thus, balancing the deficit in the current account. The increase in capital flows has given rise to the Asset Market Model.

4. Asset Market Model

The explosion in trading of financial assets (stocks and bonds) has reshaped the way analysts and traders look at currencies. Economic variables such as growth, inflation and productivity are no longer the only drivers of currency movements. The proportion of foreign exchange transactions stemming from cross border-trading of financial assets has dwarfed the extent of currency transactions generated from trading in goods and services. The asset market approach views currencies as asset prices traded in an efficient financial market. Consequently, currencies are increasingly demonstrating a strong correlation with asset markets, particularly equities.

The Dollar & US Asset markets-1999

In Summer of 1999, many pundits argued for the fall of the dollar against the euro on the grounds of the expanding US current account deficit, and an overvalued Wall Street. That was based on the rationale that non-US investors would begin withdrawing their funds from US stocks and bonds into more economically sound markets thus, weighing significantly on the dollar. Yet, such fears have lingered since the early 1980s when the US current account soared to a record high 3.5% of GDP. Just like in the 1980s, foreign investors' appetite in US assets have remained largely unhinged. Unlike in the 1980s, the 1990s witnessed the disappearance of the budget deficit. Growth in foreign holdings of US Treasuries may have slowed, but it remained more than offset by a prodigious inflow into US stocks. In the case of a burst in the US bubble, the most probable alternative for non-US investors would likely be safer US treasuries, rather than Eurozone or UK stocks, which are likely to be just as battered during such an event. This had already taken place during the crises of November 1998, and the equity scare of December 1996 prompted by Fed Chairman Greenspan's "irrational exuberance" speech. In the former case, net foreign treasury buying almost tripled to $44 bln, while in the latter case it soared more than 10 times, reaching $25 bln. Throughout the past two decades, the balance of payments approach in assessing the dollar's behavior has given way to the asset market approach. An improvement in Eurozone economic fundamentals will certainly help the young currency recover some lost ground, but it will take more than simple fundamentals to sustain such a recovery. There remains the issue of ECB credibility; which has so far had an inverse relation with the frequency of verbal support for the euro. Looming risks of government stability in the Eurozone big 3 (Germany, France and Italy) and the sensitive issue of expanding membership in the European Monetary Union are also seen as potential obstacles to the single currency. At the time, the dollar remained steady thanks to the following ingredients: non-inflationary growth, "safe-haven" nature of US asset markets and the aforementioned Euro risks.

Technical Analysis

Purchasing Power Parity Interest Rate Parity Balance of Payments Model Asset Market Model

Technical Analysis

Technical analysis examines past price and volume data to forecast future price movements. This type of analysis focuses on the formation of charts and formulae to capture major and minor trends, identify buying/selling opportunities assessing the extent of market turnarounds. Depending upon your time horizon, you could use technical analysis on an intraday basis (5-minute, 15 minute, hourly), weekly or monthly basis.

The Basic Theories

Dow Theory

The oldest theory in technical analysis states that prices fully reflect all existing information. Knowledge available to participants (traders, analysts, portfolio managers, market strategists and investors) is already discounted in the price action. Movements caused by unpredictable events such as acts of god will be contained within the overall trend. Technical analysis aims at studying price action to draw conclusions on future moves. Developed primarily around stock market averages, the Dow Theory holds that prices progressed into wave patterns which consisted of three types of magnitude-primary, secondary and minor. The time involved ranged from less than three weeks to over a year. The theory also identified retracement patterns, which are common levels by which trends pare their moves. Such retracements are 33%, 50% and 66%.

Fibonacci Retracement

This is a popular retracement series based on mathematical ratios arising from natural and man-made phenomena. It is used to determine how far has a price rebounded or backtracked from its underlying trend. The most important retracement levels are: 38.2%, 50% and 61.8%.

Elliott Wave

Ellioticians classify price movements in patterned waves that can indicate future targets and reversals. Waves moving with the trend are called impulse waves, whereas waves moving against the trend are called corrective waves. Elliott Wave Theory breaks down impulse waves and corrective waves into five primary and three primary movements respectively. The eight movements comprise a complete wave cycle. Time frames can range from 15 minutes to decades. The challenging part of Elliott Wave Theory is figuring out the relativity of the wave structure. A corrective wave, for instance, could be composed of sub impulsive and corrective waves. It is therefore crucial to determine the role of a wave in relation to the greater wave structure. Thus, the key to Elliot Waves is to be able to identify the wave context in question. Ellioticians also use Fibonacci retracements to predict the tops and bottoms of future waves.

What to Look For in Technicals?

Find the Trend

One of the first things you'll ever hear in technical analysis is the following motto: "the trend is your friend". Finding the prevailing trend will help you become aware of the overall market direction and offer you better visibility-especially when shorter-term movements tend to clutter the picture. Weekly and monthly charts are most ideally suited for identifying that longer-term trend. Once you have found the overall trend, you could select the trend of the time horizon in which you wish to trade. Thus, you could effectively buy on the dips during rising trends, and sell the rallies during downward trends.

Support & Resistance

Support and resistance levels are points where a chart experiences recurring upward or downward pressure. A support level is usually the low point in any chart pattern (hourly, weekly or annually), whereas a resistance level is the high or the peak point of the pattern. These points are identified as support and resistance when they show a tendency to reappear. It is best to buy/sell near support/resistance levels that are unlikely to be broken. Once these levels are broken, they tend to become the opposite obstacle. Thus, in a rising market, a resistance level that is broken, could serve as a support for the upward trend, whereas in a falling market; once a support level is broken, it could turn into a resistance.

Lines & Channels

Trend lines are simple, yet helpful tools in confirming the direction of market trends. An upward straight line is drawn by connecting at least two successive lows. Naturally, the second point must be higher than the first. The continuation of the line helps determine the path along which the market will move. An upward trend is a concrete method to identify support lines/levels. Conversely, downward lines are charted by connecting two points or more. The validity of a trading line is partly related to the number of connection points. Yet it's worth mentioning that points must not be too close together. A channel is defined as the price path drawn by two parallel trend lines. The lines serve as an upward, downward or straight corridor for the price. A familiar property of a channel for a connecting point of a trend line is to lie between the two connecting point of its opposite line.


If you believe in the "trend-in-your-friend" tenet of technical analysis, moving averages are very helpful. Moving averages tell the average price in a given point of time over a defined period of time. They are called moving because they reflect the latest average, while adhering to the same time measure. A weakness of moving averages is that they lag the market, so they do not necessarily signal a change in trends. To address this issue, using a shorter period, such as 5 or 10 day moving average, would be more reflective of the recent price action than the 40 or 200-day moving averages. Alternatively, moving averages may be used by combining two averages of distinct time- frames. Whether using 5 and 20-day MA, or 40 and 200-day MA, buy signals are usually detected when the shorter-term average crosses above the longer-term average. Conversely, sell signals are suggested when the shorter average falls below the longer one. There are three kind of mathematically distinct moving averages: Simple MA; Linearly Weighted MA; and Exponentially Smoothed. The latter choice is the preferred one because it assigns greater weight for the most recent data, and considers data in the entire life of the instrument.