NOTES ON THE “SECRETS OF ECONOMIC INDICATORS”
based on the book by Bernard Baumohl
Prepared by Don Gimpel
"The Secrets of Economic Indicators" by Bernard Baumohl, published by Wharton School Publishing, is one of the most useful books on the
market published. It identifies key econometric indicators for the stock, bond and dollar markets. It also lists the indicators in order of importance, tells you where they can be found in very specific terms and how they are to be interpreted. Those who are serious about the market can use this information to construct their own "market health" composite indexes.
These notes were prepared as a personal study aid and as a way of easily locating sections of the book for the complete explanation. They are not intended as a replacement for the material in the book. Indicators with high market sensitivity are in bold type.
TABLE SET 1: INDICATORS BY CLASSIFICATION (Note 1)
ECONOMIC DATA SOURCE B= Available in NOTES
(click on underlined internet address) Barron’s Weekly/Market
Week/Market Laboratory/
Economic Indicators
SCHEDULE OF RELEASES OF ECONOMIC INFORMATION
Economic release catalog / http://money.cnn.com/markets/IRC/economic.html / BEconomic release catalog / www.nber.org/releases/ / B
Economic release catalog / http://fidweek.econoday.com/ / B
ECONOMIC NEWS
News / www.bloomberg.com/news/ / BNews / http://money.cnn.com/news/economy / B
News / http://cbs.marketwatch.com/news / B
News / http://news.yahoo.com/fc?tmpl=fc&cid=34&in=business&cat=us_economy / B
ECONOMY, US
GDP, historical data / http://research.stlouisfed.org/fred2/categories/18
GDP, most recent report / www.bea.gov/newsreleases/rels.htm / B / Bonds: if growth<expected growth is a plus. Stocks:>3.5% is a minus, <3.5% is a plus. $: growth is a plus and inflation is negative. Page 115.
Industrial Production and Capacity Utilization / www.federalreserve.gov/releases/g17/current / B / Bonds: Sells off on jumps when Cap. Util.>80%. Stocks: rising is positive for stocks. $: modest reaction to moves. Page 146
Inventories, Business, (Manufacturing and Trade Inventories and Sales) / www.census.gov/mtis/www/current.html / B / Bonds: Faster than expected growth is negative for bonds. Stocks: No significant effect. Page 136
Non-manufacturing (service) activity from the / www.ism.ws/ISMReport/index.cfm / Bonds, Stock and $: No real effect Page 156
Orders, Durable Goods, Advance Report / www.census.gov/indicator/www/m3/adv/ / B / Bonds: Surprises are negative. Stocks: growth is a plus if CU<84%. $: growth is a plus. Page 122
Orders, Factory (Manufacturers’ Shipments, Inventories and Orders) / www.census.gov/indicator/www/m3/adv/ / B / Bonds: Prices up on weakening economy. Stocks: inch up on strengthening. $: unaffected. Page 129 Note 6
Purchasing Managers Report, Chicago, NAPM / www.napm-chicago.org
Recessions and Expansions, dates and lengths / www.nber.org/cycles.html/ / Academic interest only.
Supply Mgmt. Manufacturing Survey (ISM) / www.ism.ws/ismreport/index.cfm / Bonds: If >50 bearish, <45 is bullish. Stocks: Up if trending up. $: moves up if >50Page 153
CONSUMER BEHAVIOR
Consumer Comfort Index, ABC News/Money Magazine / http://abcnews.go.com/sections/us/PollVault/PollVault.html / Bonds, Stocks and the $: No response. Page 96
Consumer Confidence, Conference Board / www.conference-board.org/economics/consumerConfidence.cfm / Bonds: sharp increase negative. Stocks and $: declines negative. Pg 90
Consumer Sentiment, U. Of Mich. / www.sca.isr.umich.edu/main.php / Bonds: advance is a negative, Stocks: advance is a positive, $: no effect. Page 99
Debt, Consumer / www.federalreserve.gov/releases/g19 / Bonds: jump gives upward pressure on interest rates. Stocks and $: little effect. Page 79
Debt, Consumers Handling (Cambridge Consumer Credit Index / www.cambridgeconsumerindex.com/index.asp?content=survey / Bonds, Stocks and $: little effect. Page 85
Debt, Credit Card Delinquencies / www.aba.com/press+room/pr_releasesmenu.htm
Debt, Household / www.federalreserve.gov/releases/housedebt/default.htm
Earnings, Real / www.bls.gov/bls/newsrels.htm
/ Bonds, Stocks and the $: Not sensitive to real earnings. Page 288
Income and Spending, Personal / www.bea.doc.gov/bea/newsrel/pinewsrelease.htm / Bonds: positive on sluggish growth, gains are negative while a jump may lead to sell-off. Stocks: higher personal income positive except on strong economy. $: goes up on increase. Page 61
Investor Confidence (UBS Index of Investor Optimism) / www.ubs.com/investoroptimism / B / Bonds: up is negative and for Stocks: up is positive. $: no effect. Page 99
Sales, Chain Store, Weekly / www.chainstoreage.com / B / Bonds: strong sales make bond traders nervous. Stocks: generally positive on rise. $: no reaction. Page 74. Note 6.
Sales, Retail / www.census.gov/svsd/advretl/view/advt2.txt
Compute the month-month change in retail sales in %. / Bonds decline on increasing sales, Stocks advance. $ declines on jumps. Page 66
Purchasing Managers Index, Chicago / www.napm.chicago.org / Bonds: Upsurge causes bonds to fall. Stocks: Little effect, $: Little effect. Page 160
Sales, Retail, E-Commerce / www.census.gov/mrts/www/current.html / Bonds, stocks and $: little reaction. Page 69
EMPLOYMENT CONDITIONS
Employment Situation / http://stats.bls.gov / B / Bonds sell of on surge particularly when Cap. Util>80%, When weakening is Bullish for Bonds. Robust employment is positive for bonds. High employment drives interest rates up. Page 37Help wanted advertising / www.conferenceboard.org/economics/ / B / Little or no impact. Page 44
Layoffs, mass / www.bls.gov/mls / Jump in layoffs bullish for Bondx. Page 46
Unemployment Insurance, weekly claims / www.ows.doleta.gov/unemploy/claims_arch / B / Claims jump>30,000/week positive for Bonds. A drop leads to lower bond prices. Persistant increases lead to down markets. $ declines on rising claims. Page 41 Note 6
HOME SALES AND CONSTRUCTION
Affordability Index, Home (National Assn. of Realtors) / www.realtor.org/research.nsf/pages/housinginxHousing Market Index-Builders perception of the current and future market for new single-family homes (NAHB) / www.realtor.org/research.nsf/pages/ehsdata / Bonds, Stocks and $: Little or no impact. Page 190 Note 6.
Housing Starts / www.census.gov/const/www/newresconstindex.html / B / Bonds: Good news is bad news for bonds. Stocks: Weakness is alarming, strength is positive. $: Strong housing report is bullish. Page 173.
Mortgage Applications, weekly (Mortgage Bankers Assn.) / www.mortgagebankers.org/newsar / Bonds: Surges might cause a sell-off.
Sales, Existing single family / www.census.gov/ / Bonds: little reaction unless CU > 83. Jumps scare bond buyers. Stocks: Strong report helps stocks. $: Strong sales help the $. Page 180.
Sales, New Home / www.census.gov/const/newressales.pdf / B / Bonds: High impact if near peak or trough of economic cycle. Stocks and $: little effect. Page 185
Spending, construction / www.census.gov/c30 / B / Bonds, Stocks and $: Little impact. Page 196
INTERNATIONAL TRADE
Current Account Balance / www.bea.gov/bea/rels.htm / Bonds and Stocks: Little impact. $: A deficit will lower value of the dollar while a surplus is highly bullish. Page 244.Prices, Export and Import / www.bls.gov/mxp / Bonds, Stocks and $:No great impact. Page 273
Trade, International / www.bea.gov/bea/newsreel/tradnewsrelease.h / Bonds and Stocks: Tricky to interpret. $: Improvement in trade balance is davorable. Page 236
INFLATION PRESSURES
Employer Costs for Employee Compensation / www.bls.gov/ / Bonds, Stocks and the $: Little impact. Page 285.Employment Cost Index / www.stats.bls.gov/news.release/eci.toc.htm / B / Bonds: A larger than expected jump upsets bond investors. A stable or week ECI is positive for the bond market. Stocks: Increase in labor costs is bearish. $: No pattern.
Inflation effect on the dollar / http://woodrow.mpls.frb.fed.us/research/data/us/calc/hist1913.cfm / B
Inflation Effect on the Dollar / www.eh.net.ehresources/howmuch/dollarq.plp / B
Inflation, US to 1800 / http://woodrow.mpls.frb.fed.us/research/data/us/calc/hist1800.cfm
Inflation, US, Historic Rates from 1913 / http://woodrow.mpls.frb.frd.us/research/data/us/calc/hist1913.cfm
Price Index, Consumer (CPI) / www.bls.gov/cpi/ / B / Bonds: A jump cuts bond values and raises yields. A benign report is bullish. Stocks: Sharp increases are very negative. $: Inflation lowers value of the dollar (and raises the value of gold). Page 254
Price Index, Producer (PPI) / www.bls.gov/ppi/ / B / Bonds: A jump in the PPI is a leading indicaor of CPI inflaion and is important because of its early release. Stocks: Reaction is similar to that of bonds. $: response may go up or down depending on other conditions. Page 361..
Productivity & Costs / www.bls.gov/news.release/prod2.t02.htm / Bonds and Stocks: No real significance. $: Gains in productivity increase US competitiveness. Page 281.
FEDERAL RESERVE SURVEYS
Beige Book / www.federalreserve.gov/frbindex.htm / Value summary of US Economy. Bonds: Any softening of economy is bullish. Stocks: Softening with little inflation is a positive for stocks. $: If up and confirmed by other indicators, it may help the $. Page 222.Chicago / www.chicagofed.org/eonomic_research_and_data/data_index.cfm / Bonds, Stocks and $: Little effect. Page 218.
Kansas City / www.kc.frb.org/mfgsurv/mfgmain.htm / Bonds: Upside surprises make investors edgy. Stocks and $: No effect. Page 212
New York / www.ny.frb.org/research/regional_economy/empiresurvey_overview.html / Bonds: NY Report is timely, modest growth helps bond prices. Stocks: Weakness has negative effect. $: No effect. Page 203
Philadelphia / www.phil.frb.org/econ/bos/index.html / Bonds, Stocks and $: Little effect.
Richmond / www.rich.frb.org/research/surveys/ / Bonds, Stocks and $: Little effect. Page 214
FEDERAL BUDGET
Current Projections / www.cho.gov/Proposed Budget / www.whitehouse.gov/comb/budget
INTEREST RATES
Mortgages / www.bankrate.com/brm/rate/avg_natl.asp / BFederal Funds and Treasury Sec., Historical rates / www.federalreserve.gov/releases/h15/data.htm
Federal Funds and Treasury Sec. Current rates / www.federalreserve.gov/releases/h15/update/ / B
Federal Funds and Treasury Sec., Current rates / www.bloomberg.com/markets/rates/ / B
MONEY AND CREDIT
Commercial & Industrial Loans, Commercial Banks / http://research.stlouisfed.org/fred2/series/BUSLOANS/49
Consumer Loans, all commercial banks, historical figures / http://research.stlouisfed.org/fred2/series/CONSUMER/49
Money Supply, US / www.federalreserve.gov/releases/h6/current / B
US DOLLAR
Exchange Rates / www.x-rates.com/ / BExchange Rates / www.xe.com/ucc/ / B
Exchange Rates / www.oanda.com/converter/classic / B
Exchange Rates, Historical / www.federalreserve.gov/releases/h10/hist/
Exchange Rates, Historical / www.oanda.com/converter/classic
Exchange Rates, vs Major Trading Partners / www.federalreserve.gov/releases/h10/summary / B
ECONOMIC STATISTICS-ONE STOP SHOPPING
Common Economic Indicators / www.economicindicators.govJoint Economic Committee, Congress / www.gpoaccess.gov/indicators/
President’s Economic Report / http://w3.access.gpo.gov/eop/
Raw data / www.economagic.com/
OTHER USEFUL SITES
Glossary of Econ. & Fin. Terms / www.exchange-handbook.co.uk/glossary.cfm?
Glossary of Econ. & Fin. Terms / www.digitaleconomist.com/glossary_macro.html
Glossary of Econ. & Fin. Terms / http://moneycentral.msn.com/investor/glossary/glossary.asp?
TABLE SET 2: INDICATORS WITH HIGH MARKET SENSITIVITY
In declining order of sensitivity
B= Available in
Barron’s Weekly/Market
Week/Market Laboratory/
CLASS INDICATOR Economic Indicators NOTES
BOND MARKET – TEN SIGNIFICANT INDICATORS
Employment Conditions / Employment situation / B / Bonds sell off on strong jobs report especially when it is unexpected. This might result in a sell-off particularly if nearing the peak of the business cycle (high Capacity Utilization). Weak reports are bullish for Bonds.Inflation Pressures / Prices, Consumer (CPI) / B / An unexpected jump can cut bond values particularly if the core-CPI also surges. A benign report is bullish for bonds.
US Economy / Manufacturing ISM Report / If the ISM Report is > 50, it is Bearish for the Bond Market. If <45, it is Bearish. The effect is benign if >45 snd <550.
Inflation Pressures / Price Index, Producer (PPI) / B / The Bond Market reacts when there is a jump in the PPI because it signals impending inflation which cuts Bond values and raises yields. No change or a decrease is favorable for bond holders.
Employment Conditions / Unemployment Insurance, Weekly Claims / B / Increasing unemployment claims are favorable for bonds especially if it jumps by 30,000 or more. A continuous drop in new claims is bad for bonds because it hints at more difficult conditions ahead.
Consumer Behavior / Sales, Retail / B / Bonds decline on increasing sales because it signals accelerating growth. Falling or weak sales are beneficial for the Bond Market.
Home Sales & Const. Activity / Housing Starts / B / Good news for housing is bad news for the fixed income markets because it implies a robust economy and possible inflation.
`US Economy / National Activity Index, Chicago Fed. / From the Chicago Fed, the CFNAI is the National (Manufacturing) Activity. Because of volatility, it is best to use the 3-month moving average of the change in h index. It is interpreted as follows:
Less than –1.5 – the economy is in a recession
Less than –0.7, the chance of a recession has risen
Greater than 0.2, the recession is likely over
Greater than 0.7, there is accelerating recession
Greater than 1.0, the economy is overheating
Economy / Production, Industrial and Capacity Utilization / B / A sell-off can occur if production jumps by more than the expected amount. This is particularly the case if CU is above 80%. Slower production with falling CU could raise Bond prices and lower interest rates.
Economy / GDP / B / If the economy is growing at or below expectations as forecast by economists, then the Bond Market reaction is likely to be positive, If growing faster than expecttions with the CPI ccelerating, this can be very negative.
STOCK MARKET – TEN SIGNIFICANT INDICATORS
Employment Conditions / Employment Situation Report / B / Increasing employment is bullish for stocks unless Capacity Utilization nears full capacity, 84%. Little or no growth is bad for stocks.Economy / Mfg. Report ISM / The stock market reacts favorably to a rising PMI. Investors worry when nearing 84% Capacity Util..
Employment Conditions / Unemployment Insurance Weekly Claims / B / A persistent increase in jobless claims is negative for the stock market because it means decreasing imployment and disposable income which further implies lower sales and corporate profits.
Inflation Pressures / Prices, Consumer (CPI) / B / Sharp increases are negative for the Stock Market because it implies inflation. This is especially true if the non-core index also goes up. If inflation is quiescent, this is bullish for stocks.
Inflation Pressures / Price, Producer (PPI) / B / Sharp increases are negative for the stock market because it signals higher product5ion costs and decreased profits.
Consumer Behavior / Sales, Retail / B / Stocks advance on upward trending Retail Sales because it signals increasing corporate profits.
Consumer Behavior / Consumer Confidence and Sentiment / B / Declining Consumer Confidence is negative for the stock market. High Consumer Co9nfidence is Bullish. Stock investors like to see high values of Consumer Sentiment.
Economy / Durable Goods Advanced Report / B / Generally, a jump in Durable Goods Orders leads tgo higher Corporate Profits and this is favorable unless tha Capacity Utilization rate nears 84%.
Economy / Production, Industrial and Capacity Utilization / B / Strong production is supportive of the Stock Market. Jumps in industrial production when nearing full Capacity Utilization are negative for Stocks.
Economy / GDP / B / If the economy is rising faster than 3.5% for several quarters may get investors nervous and this is negative for the Stock Market. Negative growth is negative for the Stock Market.
VALUE OF THE DOLLAR – TEN SIGNIFICANT INDICATORS