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Understanding Key Economic Indicators and Their Impact on the Federal Reserve's Policies

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kelda
13 diapositives · 278 Views · Jul 11, 2014

This document provides insights into major economic indicators evaluated by the Federal Reserve, outlining their significance in understanding the economy's health and trends. It examines consumer confidence, durable goods orders, employment cost index, the employment situation report, housing sales, GDP, jobless claims, inflation indices, and retail sales. Each of these indicators plays a vital role in shaping monetary policy and offers clues about future interest rate changes, consumer spending patterns, and overall economic growth potential.

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  1. 09/08/10 Basic Economic indicators

  2. Beige Book • Federal Reserve’s assessment of the economy. • No new data. • Insight into Fed’s mindset. • Can hint at changing interest rate policies. • Interest rate = cost of borrowing money.

  3. Consumer Confidence Index (CCI) • 5000 consumers surveyed about their attitude towards the economy. • Tied to consumer spending, upon which many businesses depend. • Useful, but not always reliable.

  4. Durable Goods Orders • Durable goods = capital goods expected to last 3+ years. • Advance = estimate of data. • Report = actual data (2 weeks later). • Directly tied to manufacturing industries. • Shows growth potential for entire economy, since growth requires investment.

  5. Employment Cost Index (ECI) • Measures the cost of compensation in various industries and the entire economy. • Labor costs are a huge part of overall business costs. • Changes in these costs have powerful impact on profits and/or prices. • The ECI is also a good sign of potential inflation.

  6. Employment Situation Report (ERS) • Incorporates two surveys to measure employment conditions. • Wide variety of information. • Most important figure from ERS = unemployment rate. • Hard to judge application of data at face value; understanding forces behind change is crucial.

  7. Existing Home Sales/Housing Starts • Two separate indicators. • Important ripple effect in economy. • Directly tied to housing industry/financial industry.

  8. Gross Domestic Product (GDP) • Broadest indicator of economy as a whole. • Gives a sense of the economy’s value. • Announcements can cause huge price adjustments to the stock market.

  9. Jobless Claims • The number of first time filings for unemployment insurance. • Insight into the direction of unemployment rate.

  10. Price Indices (PPI/CPI) • PPI = Producer Price Index. • CPI = Consumer Price Index. • Primary measure of inflation. • High inflation = high interest rates.

  11. Retail Sales • Total consumer spending. • Revenues from retail sales drive business profits, either directly or indirectly. • Individual sectors can be analyzed for revenue strength or weakness, which can be crucial for accurate stock valuation.

  12. Sources • http://www.investopedia.com/university/releases/default.asp • http://www.rbcpa.com/economic_fundamentals.pdf • http://17ave.blogspot.com/2009/01/10-most-important-economic-indicators.html • http://online.barrons.com/public/page/barrons_econoday.html?mod=BOL_hpp_tnav_market