How to Interpret the Economic Calendar

• What is Purchasing Managers Index (PMI)?
• What is GDP? What is Counted in GDP?
• What is Consumer Price Index (CPI)?
• What is Income Statement Used for?
• What is Retail Price Index (RPI)?
• How does Unemployment Rate Work?
• What is the Impact of the Interest Rate Decision?
• What is Producer Price Index (PPI)?
• What is Consumer Price Index (CCI)?
• What is the Institute for Supply Management (ISM)?
• What is Gross National Product (GNP)?
• What is IFO?
• What does Non Farm Payroll Employment Mean?
• What is the Retail Sales Report?
• What is Current Account?
• What is Housing Starts Data?
• What are Crude Oil Inventories?
• What is Industrial Production Index?
• What is ISM Manufacturing Report?

What is Purchasing Managers Index (PMI)?

The Purchasing Managers Index measures the economic health of the manufacturing sector. The data is collected through a survey of 400 purchasing managers in the manufacturing sector and based on five different fields: Production, new orders, inventories, Supplier deliveries and employment level. The PMI can provide information about the business condition.

Example: The PMI provides analysts, purchasing managers and company managers with the current economic activity.

What is GDP? What is Counted in GDP?

GDP or Gross Domestic Product is the total value of goods and services produced by an economy. To calculate the GDP, you add total consumption, plus investment, and government spending to the difference between exports and imports. (C + I + G + (E – I)).

Example: The GDP is a backward-looking measure of economic growth as it is usually released 4-week after a quarter has ended.

What is Consumer Price Index (CPI)?

The consumer price index is an inflation index, that reveals changes to prices directly affecting the consumer. The index is calculated by averaging the changes in prices of a weighted basket of goods and services and comparing that change to a prior period. Items that are focused on include home prices, rents, energy, and food.

Example: The CPI is the measure most widely used to quote changes to inflation.

What is Income Statement Used For?

The New Residential Construction Report is popularly known as housing starts contain statistics of housing construction activities. It is a monthly report on housing starts construction with the laying down of the foundation, grant of building permits which indicates how many new homes plan to build in the near future.

Example: The Income Statement shows a firm’s revenues and expenses, for a specific financial period. This summarises the revenue items, the expense items, and the difference between them gives the firm’s net income for an accounting period.

What is Retail Price Index (RPI)?

The Retail Price Index (RPI) is produced in the U.K. by the Nation Statistics Office and is one of two component produced to evaluate inflation at the consumer level. The index is calculated by analyzing nearly 180K price quotes of a fixed basket of goods and services. It was introduced in 1947, nearly 50 years prior to the CPI.

Example: The RPI has taken a back seat to the CPI as a way the Bank of England evaluates consumer inflation.

How Does Unemployment Rate Work?

The unemployment rate is a ratio that is calculated by dividing the number of people that unemployed by the total number of people in the labor force. This number is calculated slightly differently depending on the country that you are evaluating.

Example: In the United States this number is referred to as the U3 and is narrowly defined, but there are broader measures including the U6, which measures part-time workers as well as those underemployed which is considered a more accurate reflection of the employment situation.

What is the Impact of Interest Rate Decision?

The interest rate decision generally refers to a change in sovereign interest rates that occur at a regularly scheduled monetary policy meeting held by a central bank. Each central bank sets interest rate policy by establishing a deposit rate or borrowing rate for commercial banks in that country.

Example: This is the most widely watched event and a surprise can generate significant volatility.

What is Producer Price Index (PPI)?

The producer price index (PPI) is a measure of inflation at the wholesale level. The PPI is calculated by evaluating nearly 10K prices that come into the Bureau of Labor Statistics every month. The index tracts the out of nearly all industrial goods and service produced in the United States including mining and manufacturing.

Example: The PPI also focusses on commodity-based prices, such as crude oil as well as commodity-based final demand.

What is Consumer Confidence Index (CCI)?

The U.S. consumer confidence index (CCI) is an indicator that determines the level of positive or negative sentiment consumers are experiencing. The index is defined as the degree of optimism, or pessimism on the state of the economy which is calculated by evaluating the level of spending or savings.

Example: Confidence in the U.S. helps gauge spending which makes up approximately 65% of GDP.

What is the Institute for Supply Management (ISM)?

The Institute for Supply Management (ISM), is a leading supply management institute in U.S. ISM publishes monthly ISM Report on Business. This publication brings out both surveys: the Manufacturing and Non-Manufacturing. ISM index reports are constructed to reflect the status of employment, business activity, production inventories, new orders and supplier deliveries.

Example: The data in its monthly release are used as a popular economic indicator and forecaster.

What is Gross National Product (GNP)?

Gross national product (GNP), is a measurement of growth that is focused on forecasting the value of all the final products and services produced by an economy during a specific period of time that is produced domestically by country residents. The index is commonly compared to the GDP.

Example: GNP is calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income, minus income earned within the domestic economy by foreign residents.

What is IFO?

The IFO is an economic research institute in Germany and considered one of the leading economic research institutes in Europe.It undertakes both theoretical and empirical studies in the areas of the national and global economy. It brings out monthly Business Climate Index based on a survey of 7000 firms.

Example: The IFO Business Climate Index is considered as an early indicator of the situation of the German economy.

What Does Non-Farm Payrolls Mean?

The non-farm payroll report is the headline U.S. employment release that measures the net gain in employees measured during a corporate survey. The report does not include farm workers, private household employees, or non-profit Organization employees. The report is released by the Department of Labor and is separate from the household survey report.

Example: The report is released on the first Friday of every month, and is considered the most important economic data release.

What is the Retail Sales Report?

The retail sales report in the United States is a comprehensive retail demand report released by the Commerce Department. Retail sales are an aggregated measure of the sales of retail and are calculated by data sampling throughout the entire country. The report measures consumer demand and helps gauge overall consumer spending.

Example: Consumer spending makes up nearly 65% of the GDP in the United States, which makes retail sales a vital economic release.

What is Current Account?

A current account describes a nation’s balance of trade describing the investment and savings that are produced by a country. The current account is defined by the sum of goods and services export minus imports, along with net income.

Example: A current account deficit or surplus helps describe the value of exports relative to imports.

What is Housing Starts Data?

The New Residential Construction Report is popularly known as housing starts contain statistics of housing construction activities. It is a monthly report on housing starts construction with the laying down of the foundation, grant of building permits which indicates how many new homes plan to build in the near future.

Example: As per The New Residential Construction Report February 2014, the construction of new U.S. homes has reduced. But the number of applications for new building permits has increased substantially. This signals housing construction works will pick up in near future.

What are Crude Oil Inventories?

Crude oil inventories are reported by the U.S. Department of Energy and reflect the number of crude oil stocks held in reserve by refiners and oil storage facilities. The Energy Information Administration releases its estimate weekly on Wednesday’s, in its weekly oil storage report.

Example: The crude oil market generally experiences volatility immediately following the release of the EIA report.

What is Industrial Production Index?

Industrial Production Index, released by the fed is used as a monthly report on production figures. The Industrial production shows the raw volume of goods produced by industrial firms such as factories, mines and electric utilities in the United States. It indicates the overall economic activity and GDP.

Example: The monthly release provides summarizes data together with percentage changes on month-to-month and year-over-year levels.

What is ISM Manufacturing Report?

The ISM Manufacturing Report is based on a survey of purchasing and supply executives. Survey responses reflect the change, if any, in the current month compared to the previous month. A Non-Manufacturing index reflects the status of employment, business activity, new orders and supplier deliveries.

Example: Manufacturing ISM Report on Business provides valuable data used in economic analysis and forecasting.