Economic indicators are quantitative announcements released as data reflecting the financial, economical and social atmosphere of an economy. They are published by various agencies of the government or private sector. These statistics are anticipated by the public and are released at predetermined times according to a schedule; they are used by many to monitor the health and strength of an economy. With so many players anticipating the release, the announcements themselves often create a surge in volume and may often move the price of various instruments very quickly.
With so many economic releases made daily, it is more important to know a few major announcements then to try to be up to date with them all.
The following is a basic guide to economic announcements:
1. Economic Calendar
Know exactly when each economic indicator is due to be released. Try keeping a calendar on your desk or trading station that contains the name of the indicator the date and time as well as the expected release. Often it's not just the announcement itself that moves the market but the anticipation of an announcement may move the market sometimes days or weeks prior to the release.
2. Understand the Announcement
Understand what particular aspect of the economy is being revealed in the data. There are several aspects of an economy that are measured from Growth such as GDP, Inflation such as PPI or CPI, Employment such as Non-Farm Payrolls, Interest Rate announcements, Confidence such as Consumer Confidence or Spending and so on.. After you follow the data for a while you'll become very familiar with each economic indicator and what part of the economy they are relating to.
3. Know the Indicators to Concentrate On
As mentioned before there are a myriad of indicators that are released daily, it would be impossible to follow them all religiously, and it may well be a waste of time. Some move markets others don't – concentrate on the ones that do. However economic indicators are not static over the years some have gained greater importance and others have become less important – keep up to date.
4. Anticipation
The data itself may not be as significant as the difference between market expectation and the actual result. As mentioned earlier it is important to know the expectation by the market, expectations are then built into the price of the instrument. What is not is an unexpected figure or event. This is sometimes felt not only by the announcement itself but by the wording joined with the announcement. For instance an expected 0.25% rate hike may not change the market as it was expected however the wording following the announcement that there will not be any further hikes may in fact move the price.
5. Understand the Release
Not all unexpected releases trigger a move in the market. Contained in each new economic indicator released to the public are revisions to previously released data. Sometimes these can be ambiguous for instance, if durable goods rise by 0.4% in the current month and the market is anticipating them to fall, the unexpected rise could be the result of a downward revision to the prior month. Check out the revisions to older data because in this case, the previous month's durable goods figure might've been originally reported as a rise of 0.4% but now, along with the new figures, is being revised lower to say a rise of only 0.1% Therefore, the unexpected rise in the current month is likely the result of a downward revision to the previous month's data.