Macroeconomic Indicators

In the Forex market, traders are speculating on the health of countries' economies. In order to have an understanding of an economy's "fundamentals", one needs to look at how productive and vibrant the different sectors of the economy are. This involves looking at data on manufacturing, retail sales, housing construction and sales, consumer spending and confidence, and the status of the labor market. Data on these different sectors can be found in reports released by government agencies, academic institutions, and private firms.

Gross Domestic Product (GDP)

GDP= Consumption spending + Investment spending + Government spending + Imports and Exports.

It is a broad measure of the country's economic position. Since the GDP is a lagging indicator traders look at the "Advance Report" and "Preliminary Reports" that are released in the months before the final GDP numbers. The GDP is analogous to the gross profit margin of a company, so large difference between values in the different reports can cause sharp fluctuations in the currency price.

Retail sales Indicator

This is an indicator of overall consumer spending (shopping) in retail stores and is an indication of consumer confidence in the economy. Retail sales is seasonal in nature (since periods like the holiday and back to school seasons can skew spending significantly). Hence it is best to compare with last year's number and not previous month.

The report is released every month.

Industrial Production

This report shows the change in the "production" and "capacity utilizations" of factories, mines and utilities within a country. An increase of production is an indication of economic improvement.

Housing starts and stats

Housing data is one of the most important aspects of the economy. "Housing Starts" is a measure of the number of privately owned new houses on which construction has been started in a given period. Since housing is dependant on borrowed capital; it is one of the first sectors that react to interest rate changes. Compare percentage change in Starts, Existing Home Sales and New Home Sales between consecutive months as an indicator of economic performance.

The report is released around the middle of the month with information about previous month.

Stock market Indices

Stock markets indices are indicative of the overall direction of the economy and reflect investor confidence. While stock markets react (and sometimes sharply) to interest rate changes, the overall performance of the equity markets is indicative of long-term strengthening of the base currency.

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