Economic data that a trader should be able to understand.
Part 2.
Hello everyone
Today we will continue discussing the economic data that you may encounter in the economic calendar, the knowledge of which will help you to make more profit in the forex market.
Business environment: Indicators and Surveys
These indicators and surveys reflect observational data on the business climate. These surveys are interesting because they are conducted among businesses that produce goods and services within the economy.
They are important because they can give advance warning of changes in the economic cycle. They are also important because this information comes directly from the companies providing jobs. The surveyed companies express their level of confidence, which can be used to determine their intentions regarding hiring and layoffs of employees.
They provide important data on the economic opinions of manufacturers and their expectations regarding business conditions in general.
Inventory Data
The inventory data measures the level of stocks of manufactured goods stored by the manufacturer. They also measure the level of stocks held by distributors on behalf of the manufacturer of these goods.
This type of data is important because it reflects the dynamics of demand for finished products. This dynamic takes the form of possible sales.
If the inventory level is low, it may mean that demand exceeds supply. This is a good sign for companies, because it shows that the economy is in a growth phase, and they can start to increase production and, if they are lucky, get more profits.
But it can also be a bad sign. Low inventory levels can also mean that producers are not optimistic about demand, and therefore produce less.
Here you need to figure out the balance of supply and demand. It is best to use this indicator in combination with others to determine the strength or weakness of a particular economy.
Economists study the ratio of stocks to sales. This helps to determine whether the low inventory level is due to the fact that production is not keeping up with demand or that manufacturers of goods are not optimistic about demand in the future. If the ratio is higher than usual, production and imports may be reduced until demand increases. And if the ratio is lower, products and imports are likely to grow until demand declines.
Industrial and Mass Production
In this type of data, the conditionally net production of manufacturing companies and mines for the extraction of natural resources is measured.
It is important because it is an indicator of the current levels of industrial activity. Many economists believe that industrial production can be used as a general indicator of the state of the economic cycle for those countries in which the industrial sector is developed.
All the currencies that we will track for our trading belong to countries with a developed industrial sector.
Industries producing capital goods and consumer durables tend to suffer the most during an economic downturn. This is due to the fact that ordinary people stop buying things that are not necessary for survival. Which accounts for most of the spending in most of the world's major economies. In turn, this leads to an increase in the number of layoffs, which only exacerbates the problem.
Capacity Utilization
This type of data measures how actively factories and equipment are used to produce goods. All producers of the country participate in the measurement – this is necessary to obtain an average value of production efficiency.
It is important because it is an indicator of the level of economic productivity – it can give us hints about inflation. Strong economic growth together with high utilization of production capacities implies rising inflation, because all the equipment in the country is used almost to the maximum. That is, simply put, companies work efficiently, and production cannot be increased without adding capacity and hiring more workers.
If demand is expected to remain high and interest rates are low, then manufacturers can invest in new plants and equipment, which will also lead to an increase in inflation. Rising inflation is good (as long as it doesn't become excessive).
Everything can be reduced to one question: are people and companies spending money, is production expanding? If yes, this is usually good news for the economic cycle, because it indicates a growth phase.
Industrial Orders (Manufacturing Orders)
This type of data measures the total number of new orders received by manufacturing companies over a specific time period.
It is important because it can be used to make a conclusion about the economic result in the near future.
In a short time, a high level of orders is an indicator of increased employment and production. This can cause an increase in inflation, provided that unemployment is already low, capacity utilization is high, and inventory data is low. It is best to use this indicator in combination with others.
The order level can also provide advance warning of changes in the business cycle. An increase in orders can be a signal of the end of the recession, and its decline is a signal that the peak phase has come in the economic cycle. But it all depends on the current and recent state of the economy. The same indicator values may have different meanings depending on which part of the economic cycle we are in.
Automotive industry (Motor Vehicles)
The name speaks for itself. This type of data measures industrial activity related to the production of cars and trucks.
It is important because it is an indicator of the industrial production of cars and trucks. Based on these data, conclusions can be drawn regarding the demand for expensive goods or durable goods.
Car sales data are not unreasonably considered a leading indicator, because the growing demand for cars implies an increase in consumption. In addition, the production of vans and trucks is an indicator of business investment, because companies use large vehicles in their activities - for example, in order to transport and deliver their products.
Orders for the construction of buildings and structures and results (Construction Orders and Output)
This type of data measures activity in the construction sector.
It is important because it is an indicator of new investments and possible future economic results in the form of new construction projects.
Construction is very much subject to cyclical conditions, because, obviously, it is much easier to do it when there is not a foot of snow on the ground.
Construction is very sensitive to interest rates and expectations about future demand. And all because positive expectations are exactly what people are buying new houses or apartments for themselves (usually on credit).
High order numbers may mean increased demand for construction materials and more active use of labor in the coming months. Low levels mean the opposite.
Number of new constructions (houses), completion of construction, sales (Housing Starts, Completions, and Sales)
In these types of data, the number of new house constructions, their delivery and sale is measured (previously built houses are also taken into account in sales).
They are important because they are an indicator of the level of activity in the construction sector and can signal an increase in industrial and consumer demand. Obviously, the more construction, the better the economic prospects in the country. Plus, it helps to spur inflation.
New construction implies an increase in demand for raw materials and labor, without which a house cannot be built. Both are related to employment and interest rates.
Renting houses implies sales. This may mean an increase in demand for mortgages in the future. If mortgages are already issued, this can lead to an increase in demand for durable goods, such as household utensils and cars. Good times!
Sales are positively affected by the growth of personal income and lower interest rates. Low interest rates make buying homes more affordable because people can take out cheaper loans.
What we don't want to see is a lot of construction completions – and a lack of sales. This may mean that many of the built objects have remained empty. This situation will have a negative impact on the real estate market, on banks issuing mortgages, and will cause an increase in unemployment. This is exactly what happened in the United States during the Great Recession of 2007.
an overview of the rest of the economic data can be found in the next article.
all the best.
Hello everyone
Today we will continue discussing the economic data that you may encounter in the economic calendar, the knowledge of which will help you to make more profit in the forex market.
Business environment: Indicators and Surveys
These indicators and surveys reflect observational data on the business climate. These surveys are interesting because they are conducted among businesses that produce goods and services within the economy.
They are important because they can give advance warning of changes in the economic cycle. They are also important because this information comes directly from the companies providing jobs. The surveyed companies express their level of confidence, which can be used to determine their intentions regarding hiring and layoffs of employees.
They provide important data on the economic opinions of manufacturers and their expectations regarding business conditions in general.
Inventory Data
The inventory data measures the level of stocks of manufactured goods stored by the manufacturer. They also measure the level of stocks held by distributors on behalf of the manufacturer of these goods.
This type of data is important because it reflects the dynamics of demand for finished products. This dynamic takes the form of possible sales.
If the inventory level is low, it may mean that demand exceeds supply. This is a good sign for companies, because it shows that the economy is in a growth phase, and they can start to increase production and, if they are lucky, get more profits.
But it can also be a bad sign. Low inventory levels can also mean that producers are not optimistic about demand, and therefore produce less.
Here you need to figure out the balance of supply and demand. It is best to use this indicator in combination with others to determine the strength or weakness of a particular economy.
Economists study the ratio of stocks to sales. This helps to determine whether the low inventory level is due to the fact that production is not keeping up with demand or that manufacturers of goods are not optimistic about demand in the future. If the ratio is higher than usual, production and imports may be reduced until demand increases. And if the ratio is lower, products and imports are likely to grow until demand declines.
Industrial and Mass Production
In this type of data, the conditionally net production of manufacturing companies and mines for the extraction of natural resources is measured.
It is important because it is an indicator of the current levels of industrial activity. Many economists believe that industrial production can be used as a general indicator of the state of the economic cycle for those countries in which the industrial sector is developed.
All the currencies that we will track for our trading belong to countries with a developed industrial sector.
Industries producing capital goods and consumer durables tend to suffer the most during an economic downturn. This is due to the fact that ordinary people stop buying things that are not necessary for survival. Which accounts for most of the spending in most of the world's major economies. In turn, this leads to an increase in the number of layoffs, which only exacerbates the problem.
Capacity Utilization
This type of data measures how actively factories and equipment are used to produce goods. All producers of the country participate in the measurement – this is necessary to obtain an average value of production efficiency.
It is important because it is an indicator of the level of economic productivity – it can give us hints about inflation. Strong economic growth together with high utilization of production capacities implies rising inflation, because all the equipment in the country is used almost to the maximum. That is, simply put, companies work efficiently, and production cannot be increased without adding capacity and hiring more workers.
If demand is expected to remain high and interest rates are low, then manufacturers can invest in new plants and equipment, which will also lead to an increase in inflation. Rising inflation is good (as long as it doesn't become excessive).
Everything can be reduced to one question: are people and companies spending money, is production expanding? If yes, this is usually good news for the economic cycle, because it indicates a growth phase.
Industrial Orders (Manufacturing Orders)
This type of data measures the total number of new orders received by manufacturing companies over a specific time period.
It is important because it can be used to make a conclusion about the economic result in the near future.
In a short time, a high level of orders is an indicator of increased employment and production. This can cause an increase in inflation, provided that unemployment is already low, capacity utilization is high, and inventory data is low. It is best to use this indicator in combination with others.
The order level can also provide advance warning of changes in the business cycle. An increase in orders can be a signal of the end of the recession, and its decline is a signal that the peak phase has come in the economic cycle. But it all depends on the current and recent state of the economy. The same indicator values may have different meanings depending on which part of the economic cycle we are in.
Automotive industry (Motor Vehicles)
The name speaks for itself. This type of data measures industrial activity related to the production of cars and trucks.
It is important because it is an indicator of the industrial production of cars and trucks. Based on these data, conclusions can be drawn regarding the demand for expensive goods or durable goods.
Car sales data are not unreasonably considered a leading indicator, because the growing demand for cars implies an increase in consumption. In addition, the production of vans and trucks is an indicator of business investment, because companies use large vehicles in their activities - for example, in order to transport and deliver their products.
Orders for the construction of buildings and structures and results (Construction Orders and Output)
This type of data measures activity in the construction sector.
It is important because it is an indicator of new investments and possible future economic results in the form of new construction projects.
Construction is very much subject to cyclical conditions, because, obviously, it is much easier to do it when there is not a foot of snow on the ground.
Construction is very sensitive to interest rates and expectations about future demand. And all because positive expectations are exactly what people are buying new houses or apartments for themselves (usually on credit).
High order numbers may mean increased demand for construction materials and more active use of labor in the coming months. Low levels mean the opposite.
Number of new constructions (houses), completion of construction, sales (Housing Starts, Completions, and Sales)
In these types of data, the number of new house constructions, their delivery and sale is measured (previously built houses are also taken into account in sales).
They are important because they are an indicator of the level of activity in the construction sector and can signal an increase in industrial and consumer demand. Obviously, the more construction, the better the economic prospects in the country. Plus, it helps to spur inflation.
New construction implies an increase in demand for raw materials and labor, without which a house cannot be built. Both are related to employment and interest rates.
Renting houses implies sales. This may mean an increase in demand for mortgages in the future. If mortgages are already issued, this can lead to an increase in demand for durable goods, such as household utensils and cars. Good times!
Sales are positively affected by the growth of personal income and lower interest rates. Low interest rates make buying homes more affordable because people can take out cheaper loans.
What we don't want to see is a lot of construction completions – and a lack of sales. This may mean that many of the built objects have remained empty. This situation will have a negative impact on the real estate market, on banks issuing mortgages, and will cause an increase in unemployment. This is exactly what happened in the United States during the Great Recession of 2007.
an overview of the rest of the economic data can be found in the next article.
all the best.
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