Popular Macroeconomic Indicators
In the last video, we covered expectations theory and its impact on market behaviour. This
video focuses on macroeconomic indicators that track economic growth.
What is Gross Domestic Product (GDP)?
Being the most recognised measure of economic growth, GDP shows total market value of
all finished goods and services produced within an economy over a given time period.
Reports can be issued quarterly, monthly, or yearly. It is the most comprehensive measure
of economic activity and a crucial sign of the health of an economy. A GDP rate that is higher
than anticipated typically strengthens the currency, whereas a rate that is lower than
anticipated is viewed in a negative manner.
Purchasing Managers’ Indices (PMI) explained
Purchasing managers from a variety of industries, including manufacturing, participate in
surveys that yield important economic indicators like the PMI. Because these surveys are
released prior to official data, they function as early indicators of the state of the economy.
PMIs are compiled into an overall PMI figure, name Composite PMI, that includes both the
manufacturing and services sectors. The makeup of each and every economy ultimately
determines on which of the two metrics is more important and where more emphasis shall
be placed upon. For instance, because the services sector accounts for an important
percentage of GDP in the UK, the updates from the Services PMI garners more attention. On
the flip side since China is a manufacturing powerhouse, the manufacturing PMI is more
closely monitored in that occasion. Something else to note is that PMI scores range between
1 to 100, where 50 denotes the threshold between expansion and contraction. In general,
unexpectedly high PMI readings strengthen the currency, while unexpectedly low readings
tend to depress it.
Industrial production: Definition
Manufacturing, mining, and utility outputs are all included in the industrial sector of the
economy, and this is measured by the industrial production indicators. It is not the same as
the manufacturing sector’s output growth rate. A slowdown of the industrial growth rate
tends to weaken the currency, while a higher-than-expected growth rate typically
strengthens it.
About durable goods orders
Durable goods orders track new orders placed with domestic manufacturers for long-lasting
goods used in production processes. Rising durable goods orders rates project strong
demand by domestic manufacturers, which imply potential improvements in productivity
and therefore a stronger GDP print shall be expected alongside an appreciation of the
country’s currency. Declines in durable goods orders signal weakening growth prospects,
which contributes negatively to the performance of the country’s currency.
Stay tuned for our upcoming lesson where we talk about inflation-related indicators.