The Beige Book – Major

The Summary of Commentary on Current Economic Conditions by Federal Reserve District, or Beige Book, has a conversational approach discussing the overall health of the US economy. The book has 13 sections in total; 12 regional reports from each of the member Fed district banks, preceded by one national summary drawn from the individual reports that follow it.  This is an opportunity to see how the Federal Reserve Bank interprets economic the health of each economic region.

The Beige Book is published eight times per year, just before each of the Federal Open Market Committee (FOMC) meetings. While it is used by committee members during the meeting itself, it does not carry more clout than other data values and indicators.

The Beige Book aims to give to give a broad overview of the economy, bringing many variables and indicators into the mix.  The Federal Reserve examines issues that such as labor markets, wage and price pressures, retail and ecommerce activity and manufacturing data.  The report is forward looking and discusses its view for the quarters to come.

The Beige Book by itself is not likely to have a big effect on the markets in the short term, mainly because no new data series is presented here.   Investors and Fed watchers look to the Beige Book to gain insight into the next FOMC meeting.

  • The Beige Book is released 8 times a year, two Wednesdays prior to each FOMC meeting at 2:15pm EST.

The Consumer Confidence Index (CCI) – Minor

This index is a monthly release from the Conference Board, a non-profit business group that is trusted by investors. The index is created from survey results of more than 5,000 households which examine the relative financial health, spending power and confidence of the average consumer.

There are three separate headline figures:

  • How people feel currently (Index of Consumer Sentiment),
  • How people feel the general economy is going (Current Economic Conditions),
  • How people see things in six months’ time (Index of Consumer Expectations).

The Consumer Sentiment Index is a component of the Conference Board’s template of economic indicators.

The index is a gauge of how people feel which can be which can assist investors in determining if a market is undervalued or overvalued.  It is a highly subjective survey, and the results should be interpreted with this in mind.

  • The CCI is released on the last Tuesday of every month at 10 am EST.

The Consumer Credit Report -Minor

This is a monthly release from the Federal Reserve Board that estimates changes in the money outstanding in the form of loans to individuals, used to purchase consumer products. The two classes of credit covered are revolving and non-revolving credit:

  • Revolving credit can be increased by the consumer up to a limit without contacting the creditor (as in credit cards)
  • Non-revolving terms are fixed at the time the loan.

Both categories are broken down into the following classes:

  • Commercial banks
  • Finance companies
  • Credit unions
  • Federal government & Sallie Mae
  • Savings institutions
  • Non-financial businesses
  • Securitized asset pools

Data is collected through surveys of banks, finance companies, retail sales outfits and credit unions. Each release will show the three previous months’ results, including any revisions to recent periods, if they have occurred.

Consumer credit acts as a guide for future spending and can give hints into Personal Consumption and Retail Sales reports.

  • The Consumer Credit Reports is released monthly approximately 5 weeks after the end of the reporting month and released at 3PM EST.

The Consumer Price Index (CPI) – Major

This index is the benchmark inflation guide for on the consumer level for the U.S. economy. It uses a “basket of goods” approach that compares a group of goods on a year over year basis.

There are two presented Consumer Price Inflation figures.

  • the CPI for Urban Wage Earners and Clerical Workers (CPI-W)
  • the CPI for all Urban Consumers (CPI-U)

The most watched metric, Core CPI (with food and energy prices removed) is the CPI-U, which will usually be presented with a seasonal adjustment, as consumer patterns vary widely depending on the time of year.

The CPI is an extremely detailed release, with breakouts for most major consumer groups (such as food and beverage, apparel, recreation, etc.) and geographical regions.

There are multiple indexes used by market participants to gauge inflation, but the CPI is currently the most widely excepted and important.  Investors in many markets will determine their current portfolio allocations based on expectation of this release.

The CPI is used to make adjustments to many cash flow mechanisms (pensions, medicare, cost of living adjustments to insurance policies, etc.). Fixed-income investors should always be aware of the rate of inflation against which they judge their investments, since higher inflation erodes the value of fixed returns.

  • The Consumer Price Index comes out monthly, approximately mid month at 8:30AM EST.

The Durable Goods Report- Minor

This report provides information on new orders received from thousands of manufacturers of durable goods, which are generally defined as higher-priced capital goods orders with a life of more than three years.   This includes items such as cars, refrigerators, and computers .More than 85 industries are represented in the sample, which covers the entire United States.

This release has a headline figure and an ex-transportation figure.  Both figures are subject to revisions and the headline figure is generally very volatile when it comes to revisions.  For this reason alone, market participants take this figure with a grain of salt.

The Employment Cost Index (ECI) -Major

This is a quarterly report of compensation and benefit costs that is released in the final month of the quarter. The ECI is an index-based indicator that presents the changes in wages, bonuses and benefits from the previous quarter, displayed on an hourly basis. All non-farm industries are covered except federal employees.

The data is provided by the Bureau of Labor Statistics (BLS) and is broken down by industry group, occupation.   This index is a strong measure of inflation pressures from wages and labor.  It was one of Alan Greenspan’s favorite indexes.  Investors use this index along with CPI and PPI to determine if companies will be raising price given increasing employee costs.  The Federal Reserve likes this index as a competent measure of inflationary pressure.

  • The ECI is released on the last Thursday of January, April, July, and November at 8:30 AM EST.

The Employment Report -Major

This report is also known as the Non-farm Payroll report, is a broad-based indicator released by the Bureau of Labor Statistics (BLS). It is made up two separate and equally important surveys. The first is the non-farm payroll report which surveys businesses across the country. It is the most comprehensive labor report available, covering about one-third of all non-farm workers nationwide.  This is a company survey by the BLS and it reports the number of new jobs created during the past month.

The second survey referred to as the “household survey”, measures results from more than 60,000 households and produces a figure representing the total number of individuals out of work, which creates a national unemployment rate. The data is compiled by the U.S. Census Bureau with assistance from the Bureau of Labor Statistics. Both sets of survey results will show the change from the previous month, and also year-over-year.

The Employment Situation Report is a very important release which describes that backbone of the US economy.  The non-farm payrolls figure is very important to investors and fluctuation in the number can move the capital markets.   A growing economy usually creates approximately 150,000 jobs per month.  Traders and economist can use this number as a guideline to determine if there is growth or contraction.  Turning points in this number usually are a robust guideline for shifts in economic conditions.

The household report runs on a smaller sample and may be more subjective, but the inclusion of self-employed workers, for example, can make this figure more valuable in a time when many people are starting their own business.  The household survey identifies and employment rate, as opposed to the number of people hired during the prior month as the company survey displays. The household survey takes into account demographic changes to some degree, whereas the establishment survey only counts the total number of payrolls. In effect, the household survey acts as a mini-census, which is why the same employment report may show an increase in payrolls.

The number of hours worked data helps shed light on where the economy is in the business cycle.  Companies will often stretch the number of hours of their current workforce before they decide to hire new workers.

  • The Employment report is released on the first Friday of every month at 8:30 AM EST.

The Existing Home Sales Report – Minor

This is a monthly release covering the number of existing homes that were closed during the month that was surveyed along with average sales prices by geographic region. The data is collected and released by the National Association of Realtors.

Whereas the Housing Starts release deals with construction levels and is therefore a supply-oriented housing indicator, existing sales are much more about aggregate demand among consumers.

  • The report is released in the 4th week of every month at 8:30 AM EST.

Factory Orders Report – Minor

This report contains partly new and partly old information on the manufacturing sector.   The report contains the Durable Goods Report information, which is released about one week prior (with revisions), and introduces non-durable items, representing industries such as apparel and food products.

The Factory Orders Report is more useful than the Durable Goods Report for examining trends within industries.   It breaks down specific areas into categories that are not available in Durable goods orders.  The release provides forward-looking data such as inventory levels and new business, which may count toward future earnings periods.  The Factor Orders Report arrives early enough to be useful for evaluating possible GDP as analyst compile this information.

  • Factory Orders are release the first week of the month at 8:30 AM EST.

The gross domestic product (Major)

(GDP) is one of the most important indicators for all countries.   The indicator is the aggregate measure of total economic production for a country, GDP represents the market value of all goods and services produced by the economy during the period measured.  GDP includes personal consumption, private inventories, paid-in construction costs, government purchases and the foreign trade balance.  GDP is a quarterly number and it comes in percentage growth terms. The GDP is an extremely comprehensive report.   It gathers most of the releases seen throughout the quarter and aggregates them.  The general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall benefit; enough to provide for corporate profit and jobs growth yet moderate enough to not incite undue inflationary concerns.  The general definition of an economic recession is two consecutive quarters of negative GDP growth.

While the value of both exports and imports are included in the GDP report, imports are subtracted from total GDP, meaning that all consumer purchases of imported items are not counted as contributions toward GDP.  The corporate profits and inventory data in the GDP report are a great resource for equity investors, as both categories show total growth during the period; corporate profits data also displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the economy.

  • Advance release: four weeks after quarter ends, Final release: three months after quarter ends. 8:30 AM EST

Housing Starts- Minor

The New Residential Construction Report, known is a monthly report issued by the U.S. Census Bureau jointly with the U.S. Department of Housing and Urban Development (HUD). The data is derived from surveys of homebuilders nationwide, and three metrics are provided: housing starts, building permits and housing completions. A housing start is defined as beginning the foundation of the home itself. Building permits are counted as of when they are granted.

Both building permits and housing starts will be shown as a percentage change from the prior month and year-over-year period.  The data is segmented between single-family and multiple-unit housing.

  • Released around the 17th of the month at 8:30 AM EST

Industrial Production and Capacity Utilization (Major)

Industrial production figures are based on the monthly raw volume of goods produced by industrial firms such as factories, mines and electric utilities in the United States. The industrial production data is used in conjunction with various industry estimates to calculate capacity utilization ratios for different segments of business

The industrial production and related capacity utilization figures are considered coincident indicators, meaning that changes in the levels of these indicators usually reflect similar changes in overall economic activity, and therefore gross domestic product (GDP).

The Federal Reserve watches this figure closely because it understands that inflation shows itself first at the industrial level, when supplies of basic materials get tight – either for their manufacturers or for the corporate clients who buy them. Rises in the cost of commodities and materials will begin to get passed on down the line, ending up with individual consumers of higher-cost finished products.

The market watches these figures relatively closely to determine if there is tightening in the economy in the industrial sector.  Investors who trade fixed income product are attuned to the potential for inflation based on increasing utilization.

  • Released around the 16th of the month, 9:15 AM EST

The Jobless Claims Report (Minor)

This report is released weekly and shows number of first-time filings for state jobless claims nationwide.  The sample period of only one week is relatively small, so the results can be volatile.  The initial claims are reported alongside a 4 week moving average of claim.  Total claims are also reported in the report.

Investors use this report to attain a gauge of the employment that is occurring in the United States.

  • Released once a week on Thursday at 8:30 AM EST

The Institute for Supply Management (ISM) Manufacturing and Service Reports (ISM was PMI Purchasing Managers Index) – Major

The ISM is a non-profit group with more than 40,000 members engaged in the supply management and purchasing professions, saw the need to represents the manufacturing sector as well as the service industry.  The reports are a survey of these members which is released in an index format.  The prior name was the PMI purchasing manager’s index.  These surveys are taken around the world by many different groups. (Europe, UK etc…)

The PMI (purchasing manager’s index – for manufacturing) 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, New orders, Supplier deliveries, Inventories, Employment level

The Service Reports relates to investors because it represents a much larger share of the economy and, most importantly, it covers the hard-to-measure services industries, the fastest-growing part of the U.S. economy. The survey covers many of the same categories that are found in the PMI, including employment, supplier deliveries, inventory levels, production levels and prices.

Both reports are very important to the investor community. The ISM manufacturing report has been around for a very long time and is the first piece of powerful news received during the course of a trading month.

  • Released on the 1st business day of the month (Manufacturing) and the 3rd business day of the month (services)

State Purchasing Managers Index – Minor

Many different states release a purchasing manager’s index similar to the nation index released by the ISM.  The most widely followed is the Chicago Purchasing Managers Index, which is released on the last day of every month.  New York and Philadelphia also release indices.

The Personal Consumption Report – Major

This report is issued by the Bureau of Economic Analysis (BEA) on a monthly. The report is broken down into two sections that give insight on consumer behavior.  Personal income is measured from salaries and other passive income such as interest dividends.  All items in the report are measured in percentage terms.

Personal consumption expenditures (PCE) deal with the other side of the consumer equation, mainly how much people are spending. PCE counts consumer spending for things such as retail items.  The PCE Index is a large component of the Conference Board’s Index of Coincident Indicators, and is also used to calculate real gross domestic product (GDP).

Personal income figures have shown to be on the largest determinant of future consumer demand. If people have more disposable income, they will generally spend more money.  The Fed has also anointed the core PCE Index (with food and energy removed) as one of its favorite inflation indicators, some preferring it to even the Consumer Price Index (CPI).

  • Released 4-5 weeks after month ends – 8:30 AM EST

Philadelphia Federal Reserve Business Outlook (Philly Fed) – Major

The Philadelphia Federal Reserve’s Business Outlook Survey (also known as the Philadelphia Fed Report) is a monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey and Delaware. The survey is conducted in the vein of the Purchasing Managers Index (PMI) report; it questions voluntary participants about their outlook on things such as employment, new orders, shipments, inventories and prices paid. Answers are given in the form of “better”, “worse” or “same” as the previous month, and, as with the PMI, results are diffused into an index, only this index uses a median value for expansion of 0, rather than 50. The Philly Fed Report signals expansion when it is above zero and contraction when below. As a result, values can be negative month to month.

The survey has been conducted each month and is considered one of the most valuable regional purchasing manager indexes (There are currently almost 15 such regional reports, covering much of the U.S)

The survey blends both business conditions with manufacturing conditional on a regional level. The Philly Fed Report usually is highly correlated with the national manufacturing survey which is the ISM Manufacturing Report.

  • The Philly Fed is release monthly on the 3rd Thursday of every month, at 12pm EST.

The Producer Price Index (PPI) – Major

This report is an inflation measure at the whole sale or producer level.  It is a weighted index of prices measured at the wholesale, or producer level. A monthly release from the Bureau of Labor Statistics (BLS), the PPI shows trends within the wholesale markets manufacturing industries and commodities markets.

The PPI release has three headline index figures, one each for crude, intermediate and finished goods on the national level:

PPI Commodity Index (crude): This shows the average price change from the previous month for commodities such as energy, coal, crude oil and the steel scrap.

PPI Stage of Processing (SOP) Index (intermediate): Goods here have been manufactured at some level but will be sold to further manufacturers to create the finished good.

PPI Industry Index (finished): Final stage manufacturing, and the source of the core PPI.

The core PPI figure is as important if not more important that the headline number.  This figure is the finished goods index minus the food and energy components.   Food and Energy where removed because they are so volatile. The PPI looks to capture only the prices that are being paid during the survey month itself. The PPI does not represent prices at the consumer level – this is left to the Consumer Price Index (CPI.

  • Released the 2nd or 3rd week of the month 8:30 AM EST

The Productivity and Unit Labor Costs Report – Minor

This is a quarterly release from the Bureau of Labor Statistics (BLS) that measures the level of output that is achieved by businesses per unit of labor. By measuring this, the BLS can determine the overall productivity of workers in the economy.   Productivity figures are provided across the economy as a whole, as well as for major industry groups and sub-sectors

Increased productivity is the ability of a company to achieve more output with the same workforce level. Strong productivity gains have been one of the most important reasons that the U.S. economy has expanded for the past 30 years.

  • Released 5 weeks after the end of the quarter 8:30 AM EST

Retail Sales

This indicator tracks the dollar value of merchandise sold within the retail trade.  Fixed point-of-sale businesses and non-store retailers (such as mail catalogs and vending machines) are used in the data sample. Companies of all sizes are used in the survey, from very large stores like Target to independent, small-town businesses.

The data released will cover the prior month’s sales, making it a timely indicator of not only the performance of this important industry. Retail Sales is considered a coincident indicator, in that activity reflects the current state of the economy.

The release will contain two components: a total sales figure, and one ex-auto, as the large ticket price and historical seasonality of auto sales can throw off the total figure disproportionately.
Released around the second week of the month at 8:30 AM EST