I am sure you hear and read about all kind of names, abbreviations and code words for this index and that statistics. Here, we are going to summarize the most used indices and statistics to make it easy to sort through the plethora of data out there. If you are in the market to “invest” whether in a quick in an out of a trade or buying/building the house of your dreams, you must be aware of the economic environment and trends.
It is very important to understand how each indicator is produced and what it means to you and to the market (stocks, options,….) and the economy. .
Indicators:
Purchasing Managers Index (PMI) released by Institute of Supply Management (ISM): A reading of 50 or higher indicates that the industry is expanding. A 42% number is the benchmark of the GDP. The PMI is a composite index of five “sub-indicators”, which are extracted through surveys to more than 400 purchasing managers from around the country, chosen for their geographic and industry diversification benefits. The five sub-indexes are given a weighting, as follows:
- Production level (.25)
- New orders (from customers) (.30)
- Supplier deliveries – (are they coming faster or slower?) (.15)
- Inventories (.10)
- Employment level (.20)
As you see this indicator is relatively limited and can easily be biased. In addition, if the production level is based on similar measure like productivity, the output increase means more efficient work force. But, if the unemployment is very high, then that will be misleading and give a healthier picture than the reality of the economy. Same thing might be said about the new orders. If they increase, they need to be measured against GDP rather than in the absolute sense.
Some of the economic indicators are produced by popular demand, no kidding. The Consumer Confidence Index (CCI) is a monthly release from the Conference Board. It is is formed from survey results of more than 5,000 households (with average 3000 responces) and designed to gauge the relative financial health, spending power and confidence of the average consumer. There are three separate headline figures: one for how people feel currently (Index of Consumer Sentiment), one for how they feel the general economy is going (Current Economic Conditions), and the third for how they see things in six months’ time (index of expectation).
Global Futures Trend Index calculates the amount of stocks listed on NYSE which are reaching weekly new highs or weekly new lows. As long as the gauge of this index stays above the 60% level there is a solid bullish trend in progress.
The Wall Street Courier Global Momentum Indicator is the underlying risk management indicator of the WSC Global Tactical Asset Allocation Strategy. This indicator measures the percentage of 38 global stock markets which are gaining momentum. The latter is estimated by using the ratio of the percentage of designated stocks currently trading above their respective X-day moving averages. X is a parameter that can be changed. 10 – 200 days are used to reflect different meanings.
Global Futures Long Term Trend Index is a long term trend index which is perfectly suitable for long term investors.
U.S. International Trade in Goods and Service: In my opinion this is one of the most important indicator about the long trend of the economical strength of the country. It has been showing deficit since the early 1980s.