the soundness of an economy. The unemployment rate is a
lagging economic indicator. It is an important feature to remember, the job
sector, employment is the last economic indicator to rebound. When economic
contraction causes jobs to be cut, it takes time to generate psychological
confidence in economic recovery at the managerial level before new positions
are added. At individual levels, the improvement of the job outlook may be
clouded when new positions are added in small companies and thus not fully
reflected in the data. The employment reports are significant to the financial
markets in general and to foreign exchange in particular. In foreign exchange,
the data is truly affective in periods of economic transition—recovery and
contraction. The reason for the indicators' importance in extreme economic
situations lies in the picture they paint of the health of the economy and in
the degree of maturity of a business cycle. A decreasing unemployment figure
signals a maturing cycle, whereas the opposite is true for an increasing
unemployment indicator.
Consumer spending indicators
Employment Cost Index (ECI) measures wages and inflation and
provides a comprehensive analysis of worker compensation, including wages,
salaries and fringe benefits. Consumer Spending Indicators grounded on data due
to the retail sale volume is important for the Forex because it shows the level
of consumers demand and their sentiments, which is initial data for the
calculation of other indicators such as Gross National and Gross Domestic
Products. Generally, the most commonly used employment figure is not the
monthly unemployment rate, which is released as a percentage, but the non-farm
payroll rate. The rate figure is calculated as the ratio of the difference
between the total labor force and the employed labor force, divided by the
total labor force. The data is more complex, though, and it generates more
information. In Forex, the standard indicators monitored by traders are the
unemployment rate, manufacturing
payrolls, non-farm payrolls, average earnings, and average
workweek. Generally, the most significant employment data are manufacturing and
non-farm payrolls, followed by the unemployment rate.
Retail Sales are a significant consumer-spending indicator
for foreign exchange traders, as it shows the strength of consumer demand as
well as consumer confidence. As an economic indicator, retail sales are
particularly important in the United States. Unlike other countries such
as Japan, the focus in the U.S. economy is the consumer. If
the consumer has enough discretionary income, or enough credit for that matter,
then more merchandise will be produced
or imported. Retail sales figures create an economic process
of "trickling up" to the manufacturing sector. The seasonal aspect is
important for this economic indicator. The retail sales months that are most
watched by foreign exchange traders are December, because of the holiday
season, and September, the back-to-school month. Increasingly, November is
becoming an important month, as a result of the shift in the former after-Christmas
sales to pre-December
sales days. Another interesting phenomenon occurred in the
United States despite the economic recession in the early 1990s. The volume of
retail sales was unusually high while the profit margin was much thinner. The
reason was the consumer's shift toward discount stores. Traders watch retail
sales closely to gauge the overall strength of the economy and, consequently,
the strength of the currency. This indicator is released on a monthly basis.
Consumer sentiment is a survey of households that is
designed to directly gauge the individual propensity for spending money to
increase or to maintain on the same level their expenditures connected with the
satisfaction of the household current needs and, by implication, - the situation
on the labor market. Despite the importance of the auto industry in terms of
both production and sales, the level of auto sales is not an economic indicator
widely followed by foreign exchange traders. The American automakers
experienced a long, steady market share loss, only to start rebounding in the
early 1990s. But car manufacturing has become increasingly internationalized,
with American cars being assembled outside the United States and Japanese and
German cars assembled within the United States.
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