Economic Indicator PageThis Economic Indicator page has many definitions to help you understand financial terms and the effect they have on your first time home buyer loan. Economic Indicator #1 Business Inventories And Sales These figures measure the inventories and sales of manufacturing, wholesalers and retail establishments. The Bureau of Census releases these figures monthly. In Economic Indicator #2 Capacity Utilization The capacity utilization rate measures the percent of industrial output currently in use. A change in the rate indicates a change in the direction of economic activity. As the percentage rate moves closer to 90% the industrial output is practically at full capacity and is inflationary. A number closer to 70% is recessionary. A higher percentageindicates a stronger manufacturing sector and an expanding economy that can be inflationary. Bond Market Moves Down in Price. Economic Indicator #3 Consumer Price Index (CPI) The consumer price index is an indicator of the general level of prices. Components include energy, food and beverages, housing, apparel, transportation, medical care, and entertainment. When the consumer price index goes up, it is a sign of an inflationary environment. Consumers have to pay more for the same amount of goods and services.Bond Market Moves Down In Price. Economic Indicator #4 Durable Goods Orders This gives a reading on the country's future manufacturing activity. Durable goods include those manufactured items with a normal life expectancy of three years or longer. An increase in the amount of durable goods orders may indicate an expansion in the economy and, if inflationary, the Federal Reserve could choose to tighten money by raising interest rates. Bond Market Moves Down In Price. Economic Indicator #5 Effect Of Economic Indicators On Fixed Income Investments Market participants look to U.S. Government economic releases as an indication of the economy's strength and general direction. Overall, economic indicators reflect the rate of economic growth and inflation that, in turn, affects interest rates. There is an inverse relationship between interest rates and bond prices. If the economic indicators indicate that the rate of inflation is on the rise, it will most likely result in higher interest rates and lower bond prices. Conversely, if these indicators indicate the rate of inflation is falling this will result in lower interest rates and higher bond prices. The following glossary defines what these indicators are and how they might affect the bond market. Economic Indicator #6 Factory Orders These are manufacturer's shipments, inventories, and orders. Factory orders include shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the economy and could be an inflationary factor. Bond Market Moves Down In Price. Economic Indicator #7 FED Is Easing This is exactly the opposite of Fed tightening. The Federal Reserve feels that the economy is not growing at the desired level and eases credit conditions by lowering interest rates to help stimulate the economy. Bond Market Moves Up In Price. Economic Indicator #8 FED Is Tightening This term refers to efforts by the Federal Reserve to curb excessive growth in the money supply. Raising the discount rate and/or increasing the federal funds rate can accomplish this. Bond Market Moves Down In Price. Economic Indicator #9 Gross National Product (GNP) The Gross National Product is the broadest measure of the nation's production. It measures the market value of all newly produced goods and services in the United States. When GNP is down, it shows a slowing down in the economy. To counteract this, the Federal Reserve may loosen money by lowering interest rates. Bond Market Moves Up In Price. Economic Indicator #10 Industrial Production Index The industrial production index measures the monthly level of the physical output of the manufacturing, mining, and gas and electric utility industries. When industrial production is down, it indicates a slowing of economic growth and, therefore, the Federal Reserve is inclined to allow interest rates to drop to stimulate the economy. Bond Market Moves Up In Price. Economic Indicator #11 Leading Economic Indicators This index is a composite of 11 statistics designed to foretell economic activity 6 to 9 months hence, (i.e. building permits, new orders for consumer goods and materials, the average workweek, index of consumer expectations). Economic Indicator #12 Merchandise Trade Balance Released monthly, this figure measures the difference between imports and exports. When exports are higher than imports, there is a surplus in the balance of trade. Whenimports are higher than exports, there is a deficit. The import-export differential is referred to as the trade gap. Economic Indicator #13 Money Supply This is the amount of money in circulation. M1 = cash + regular demand deposits + other check-type deposits. M2 = M1 + savings and small denomination time deposits. When the money supply figure is up, it is an inflationary factor and, therefore, generates concern that the Federal Reserve will tighten money growth by allowing short-term interest rates to rise. Bond Market Moves Down In Price. Economic Indicator #14 Non-Farm Payroll The non-farm payroll figure is a component of total civilian employment and measures the number of people employed in all activities except agriculture. Economic Indicator #15 Producer Price Index (PPI) The monthly producer price index measures the level of prices for all goods produced and imported for sale in the primary marketplace. Increase in the PPI tends to lead other measures of inflation. Bond Market Moves Down In Price. Economic Indicator #16 Retail Sales Key components of retail sales include automobiles, building materials, furniture, department store sales, food stores, gasoline, clothing, restaurants and drugstores. High retail sales are an indication of economic growth and an expanding economy. Bond Market Moves Down In Price. Economic Indicator #17 Unemployment Rate This is the percent of the civilian labor force currently unemployed. If unemployment figures are up, it indicates a lack of expansion within the economy. Therefore, this would be good for the bond market. Conversely, a big gain in employment would be an obvious cue for the Federal Reserve to tighten (raise) either the federal funds rate or the discount rate. Bond Market Moves Up In Price.
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