This article will focus on a select few key economic data releases that traders and laymen alike should be aware of, as these are the underlying factors that measure the performance of a country’s economy.
Most noteworthy data is scheduled for release monthly, although some data is reported quarterly. Here are five of the most important economic data releases:
Gross Domestic Product (GDP)
This is one of the most important indicators for fundamental traders to watch because it provides insight into the health of a respective economy. There are several components that make up the GDP figure, but the key is to observe the GDP growth rate; this is the percentage increase in GDP from quarter to quarter. The growth rate measures whether the economy is growing more quickly or more slowly than the previous quarter. If a nation produces less than the previous quarter, the economy contracts — and if the growth rate is negative for two consecutive quarters, this signals a recession.
Inflation is the rate of increase in prices for goods and services. The Consumer Price Index (CPI), which is also referred to as cost-of-living index, is used to measure inflation. In terms of the CPI, it covers data from hundreds of things we commonly spend money on, including bread, fashionable clothing, pints of beer and other beverages; it also tracks how these prices have changed over time.
There are several forms of labor market data that should be watched carefully. First is the unemployment rate, which is the percentage of people unemployed in a specific country. Another is the US Non-Farm Payrolls, which is the amount of new jobs added into the economy. The average earnings number is the price businesses and the government pay for labor, including bonuses. It is also a leading indicator of consumer inflation; when businesses pay more for labor the higher costs are usually passed on to the consumer.
All of this data is important as it provides insight into the health of a country’s economy and business cycle.
Retail sales data provides a decent gauge of consumer spending in a country’s economy which typically contributes greatly to the overall economic growth. It will help paint a picture for the measurement of goods that are sold, the performance of retail stores and people’s spending patterns.
As with all mentioned general key data releases, these are viewable via an economic calendar. It is crucial for traders to view the median expectations for each piece of data, as this helps them make informed decisions when looking to enter or exit a trade. If the number disappoints the market and is weaker than the general forecast, this will most likely result in the relating currency coming under selling pressure. On the other hand, if it is stronger than expectations, typically the currency would strengthen.
Central banks will typically have a rate decision once per month, where they will either keep rates unchanged, hike or cut rates. Their decision will depend on how the economy is performing, looking at factors such as: labor markets, inflation, and economic growth. These are taken into consideration ahead of their decision.
Interest rate increases tend to strengthen a respective currency, in order to attract more foreign investment due to the higher returns. Whereas, cutting interest rates usually cause a currency to weaken.
When a government or central bank is buying its own bonds, this drives the price higher, which results in the yield being reduced, again making this less attractive for foreign investors, forcing them to turn elsewhere. The logic also being that quantitative easing (QE) is in effect — that is, printing more money and diluting the respective currency — resulting in the value dropping.
Photo Credit: kevin dooley