Keeping tabs on the economy
Q: With all the political hubbub going on, I am concerned about the market. What should I be looking at to know if my investments are safe?
A: With so much turmoil in the world right now, it can be difficult to know where to go to get information you can trust. Fortunately, you don’t need to take your investment cues from newspaper reporters, social pundits or political pollsters. Instead, you can often find better information and gain deeper insight by going directly to the information source itself. This is particularly true when it comes to economic data
Although the information in economic releases was once the exclusive domain of the Wall Street elite, this information is now free to all and is only a mouse-click away. One of the better websites for economic data is www.TradingEconomics.com. From their homepage click on the “indicators” menu at the top of the screen and then select “countries” to choose the country you are interested in. If you want to see a calendar of upcoming economic releases, simply click “calendar” at the top of the page.
As you start browsing through economic releases, you might find the deluge of information contained in them to be a little overwhelming. To help get you started, I have selected four of the indicators that I like to follow. I describe them here in the order in which they will be reported in the coming weeks. If you look them up online, you will find estimated values for each release, as well as up-to-date commentary and historical trends. Bear in mind that when it comes to economic data, trends are sometimes more important than the numbers themselves.
1) Durable goods report (due Friday, 9/25). Durable goods are expensive products that are expected to last at least three years and include a wide range of products from airplanes to trains to manufacturing equipment. This report is released by the U.S. Department of Commerce and is based on a monthly survey of manufacturers regarding their shipments, inventories and orders.
The durable goods report gives us a broad view into overall economic activity. Key components that I watch include new orders and shipments. New orders generally go up as consumers and businesses feel more confident in the future. Shipments help us understand how robust current manufacturing activity actually is.
2) Employment situation report (due Friday, 10/2). Sometimes called the Jobs Report, this is perhaps the granddaddy of all economic releases. It is always released by the U.S. Bureau of Labor Statistics (BLS) at 8:30 am East Coast time on the first Friday of the month. The report has several components, but the two most followed components are the change in non-farm payrolls and the unemployment rate.
To estimate the monthly change in non-farm payrolls, BLS researchers survey the payroll activity of 145,000 businesses across 500 different industries and several hundred metropolitan areas. The reported number is subject to revision in subsequent months and sometimes the revisions are as important as the initial release.
The unemployment rate is estimated by BLS researchers who survey about 60,000 households every month to ask who is working and who is looking for work. The unemployment rate is the percentage of people without a job who are actively looking for work. If someone is without a job, but is no longer looking for work, that person will not be counted as unemployed.
3) Markit US Manufacturing PMI (due Thursday, 10/1) and Markit US Non-Manufacturing PMI (due Monday, 10/5). These two indicators are diffusion indices which means that a reading above 50 indicates expanding activity and below 50 signals a contraction. Both are intended to show a broad snapshot of economic activity. A competitive PMI number is produced by the Institute for Supply Management, or ISM. Personally, I favor Markit indices since Markit’s methodology reflects a wider variety of businesses.
4) Retail Sales (due Friday, 10/16). Because the U.S. is a consumer-driven economy, this indicator is hugely important. The report shows the total number of sales in the prior month and the percentage change from the previous report and includes data for several categories including car dealers, gas stations, restaurants, department stores, etc. It also captures in-store sales as well as online sales.
Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.