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Global economic indicators
The Composite Index of Leading Indicators released by the Conference Board around 20th every month is the authoritative source used in predicting economy direction as well as market performance by economists and investors alike. To give a comprehensive report about prevailing economy performance, it comprises 10 economic components, each with its unique insights to offer. They are:
1) The average weekly hours of work done by manufacturing workers.
The average workweek refer is measured on a monthly basis. This is an indicator with weak market influence, but play a bigger role in long term analysis of the country's employment rate. It is also a good marker of the labor market projection during different stages of the economic cycle, besides used to calculate industrial production and personal income.
2) The average number of applications for unemployment claim.
This is a popular indicator especially for financial market investors. The Employment Situation Report is published every month and provides a clear picture of economy health. By looking at employment rate, tightness in labor market, a major factor in inflation, can be determined.
3) The amount of new orders for consumer goods received by manufacturers
Production information can be obtained from the Institute for Supply Management (ISM) or the National Association of Purchasing Managers (NAPM). Manufactured new order consumer goods will be measured with new customer's order (30%), manufacturing (25%), employment (20%), supply orders (15%) and business inventories (10%). The Capacity Utilization (CAPU) index is a relationship between the entire industrial output to the size of potential net production volume per sector. For foreign exchange traderrs, this can be an indication to future central bank decisions.
4) The speed of delivery of goods from suppliers to vendors
It will be natural for manufacturers to deliver goods to customers faster when they have a lot of orders to keep up with demand. Therefore, this is a good indicator of demand, and the economy as a whole.
5) The amount of new orders for capital goods not related to defense.
This is yet another picture of rising demand that can subsequently increase production.
6) The amount of new building permits issued
Housing sales, building and renovations are signs that the economy is booming and people are enjoying prosperous life. Therefore, building permits that is essential before starting any building works can be used as an accurate indicator of the economy. Generally, the higher the volume of building permit issued, the stronger the economy.
7) Stock prices
By monitoring the growth (or decline) of the Dow Jones Industrial Average, market health can be determined for America's most prominent corporations.
8) Money supply (M2)
Money supply is determined by the ratio of government expenses to receipt. The balance can be positive or even negative (deficit). This indicator has no almost no influence in the market as it is mainly used to analyze long-term economy. Currency rate is a direct result of how much money is available in Money Supply. An increase of one currency will reduce its value compared to other currency and vice versa.
9) Interest rates
Interest rate is the biggest financial indicator for currency markets. The difference in long term and short term interest rates reflect the market's anticipation of the Federal government to cut rates (usually during an economic downturn).
10) Consumer sentiment
When times turn bad, consumers will make changes to their spending habits and adopt a saving strategy by drastically cutting spending. When the number of such consumer is high enough, the whole economy is further effected.
The leading economic indicators are not correct every time but is nevertheless the primary tool for investors to gauge their next investment action. To the seasoned investors, looking at leading economic indicators can let them chart their investment move months ahead of a prevailing trend.