Week Ahead: Economic Indicators (US)
Hey, Traders!
For the January 29th week, here is a list of all of the major economic indicators being released during the US Session, with a brief synopsis of what they represent and what to possibly expect from the markets in reaction.
Tuesday 30th January
10:00 ET
US CB Consumer Confidence
US Consumer Confidence measures the optimism or pessimism among consumers about the overall economic conditions and their personal financial situations. Compiled and released by the Conference Board through consumer surveys, the index comprises two key components: the Present Situation Index, reflecting current perceptions of economic and employment conditions, and the Expectations Index, indicating consumers’ outlook for the short-term future. A higher index generally signals increased consumer optimism, potentially leading to higher spending, while a lower index may suggest heightened pessimism and potential decreases in consumer spending.
What to Expect
Considering the current position of the US economy, traders must weigh two scenarios when assessing this data. Lower than expected data could indicate consumers are spending less than they otherwise would, potentially helping inflation’s downward trend. Conversely, if sentiment turns out to be higher than expected, this may indicate that consumers are happy about the financial climate and may spend more money, which could aid a soft landing.
US JOLTS Job Openings
The US Job Openings and Labor Turnover Survey (JOLTS) is a monthly report released by the U.S. Bureau of Labor Statistics, offering a view of the U.S. labor market. The key components include job openings, hires, and total separations, providing insights into the demand for labor, hiring trends, and the overall health of the job market. Job openings represent the number of available positions, while hires denote the total number of workers added to payrolls. Additionally, the report breaks down total separations into quits and layoffs, shedding light on worker confidence and involuntary separations initiated by employers. Policymakers, analysts, and economists often utilize JOLTS data to gauge the robustness and fluidity of the labor market.
What to Expect
While the Fed does wish to uphold its dual mandate of 2% inflation with maximum job growth, an overly hot reading may have negative implications for the future of inflation. This could send the dollar up and stocks down.
Wednesday 31st
08:15 ET
US ADP Employment Change
The ADP Employment Change collaboratively compiled by the ADP Research Institute and Moody’s Analytics utilizes actual payroll data from a diverse array of private-sector employers to gauge changes in employment levels. Excluding government and farm employment, the ADP figures provide insights into the dynamics of the private labor market, covering small, medium, and large businesses.
What to Expect
While the Fed does wish to uphold its dual mandate of 2% inflation with maximum job growth, an overly hot reading may have negative implications for the future of inflation. This could send the dollar up and stocks down.
08:30 ET
Canadian GDP
The Canadian Gross Domestic Product (GDP) represents the total value of all goods and services produced within Canada’s borders, serving as a metric for evaluating the country’s economic performance. Calculated through both the production and expenditure approaches, GDP provides insights into the size and growth of the Canadian economy. Reported on a quarterly and annual basis, these figures are expressed in either current or constant dollars, the latter adjusted for inflation.
What to Expect
To achieve a soft landing, Canada will be looking for a strong GDP figure, which may result in strength in the Canadian dollar and Canadian stocks.
10:30 ET
US Weekly EIA Crude Oil Inventories
The U.S. Energy Information Administration (EIA) Crude Oil Inventories report is a weekly assessment of the total commercial crude oil stockpiles within the United States. The data, presented in barrels, encompasses crude oil holdings across various storage facilities and serves as a key indicator for traders, analysts, and policymakers in assessing market conditions. Significant fluctuations in inventories can influence oil prices.
What to Expect
Increases could potentially signal oversupply leading to weakness in WTI, whereas decreases suggest heightened demand or production constraints leading to WTI strength.
14:00 ET
US Interest Rate Decision
The U.S. Interest Rate Decision refers to the determinations made by the Federal Reserve, specifically the Federal Open Market Committee (FOMC), regarding the federal funds rate. The federal funds rate is a key benchmark interest rate influencing short-term borrowing costs throughout the economy. The FOMC conducts regular meetings to assess economic conditions and adjust monetary policy accordingly. Changes in the interest rate have broad implications, impacting borrowing costs for businesses, consumers, and financial institutions. A higher rate is often used to cool off an overheating economy, while a lower rate is employed to stimulate economic activity during periods of sluggish growth or recession.
What to Expect
Markets generally expect no change, however, the vocabulary used in the rate statement and press conference often causes the biggest moves as traders hang on every word for forward guidance on the future of moves or what sectors need to do more to help inflation head towards 2%.
Thursday 1st February
08:30 ET
US Weekly Initial & Continued Jobless Claims
US Weekly Initial and Continued Jobless Claims are economic indicators providing insights into the labor market, released by the US Department of Labor.
Initial Jobless Claims indicates the number of individuals filing for unemployment benefits for the first time. It serves as a real-time measure of layoffs and reflects the current state of the job market.
Continued Jobless Claims represents the number of individuals who continue to receive unemployment benefits. It offers a snapshot of ongoing unemployment trends and the duration of joblessness.
What to Expect
A decrease in initial and continued claims suggests an improving job market, while an increase may indicate economic challenges or contraction.
The Fed has mentioned that inflation seems to be coming down without unemployment rising meaningfully. This means if we continue to see this trend, it is likely to bolster bets on a soft landing for the economy. This could cause strength in US stocks and weakness in the dollar.
However, if it comes in considerably higher than expected, it could be construed as an upside risk to inflation and could cause the markets to scale back their bets on Fed rate cuts this year, and cause an opposite reaction.
In the current phase of the economic cycle (with the Fed at or near the end of its tightening campaign), it is difficult to say for sure what the markets are looking for at any one time.
09:45 ET
US S&P Manufacturing PMI
The US S&P Manufacturing Purchasing Managers’ Index is an economic indicator that measures the health of the manufacturing sector.
It is derived from surveys of purchasing managers and includes components such as new orders, production, employment, supplier deliveries, and inventories.
As a diffusion index, a PMI reading above 50 generally indicates expansion in the manufacturing sector, while a reading below 50 suggests contraction.
The S&P Manufacturing PMI is watched by analysts, policymakers, and investors for insights into economic conditions, manufacturing activity, and potential trends in the broader economy.
What to Expect
A higher-than-expected manufacturing PMI would indicate increased demand for manufactured goods, underscoring a resilient consumer in the US.
This could be seen as either an upside inflation risk (if the deviation is too large) or a sign of relatively good consumer confidence (if the deviation is just slightly higher). The reverse is also true.
This makes it difficult to outline a particular market reaction, as markets will also monitor the employment and prices paid breakdowns in the report when reacting to this data.
10:00 ET
US ISM Manufacturing PMI
The US Institute for Supply Management Manufacturing Purchasing Managers’ Index is an economic indicator that measures the health of the manufacturing sector.
It is derived from surveys of purchasing managers and includes components like new orders, production, employment, and supplier deliveries.
While both the ISM and S&P Manufacturing indices provide insights into the manufacturing sector, they are calculated by different organizations and might have variations in methodology and components.
The ISM Manufacturing PMI has been a longstanding indicator, while the S&P Manufacturing PMI is a relatively newer addition.
The ISM PMI looks only at ISM member companies, which are often chosen due to their contribution to US GDP, making them some of the largest companies in the US, while the S&P PMI looks at a broad range of different-sized companies.
Analysts consider both to get a comprehensive view of manufacturing activity in the US.
What to Expect
A higher-than-expected manufacturing PMI would indicate increased demand for manufactured goods, underscoring a resilient consumer in the US.
This could be seen as either an upside inflation risk (if the deviation is too large) or a sign of relatively good consumer confidence (if the deviation is just slightly higher). The reverse is also true.
This makes it difficult to outline a particular market reaction, as markets will also monitor the employment and prices paid breakdowns in the report when reacting to this data.
Friday 2nd February
08:30 ET
US Nonfarm Payrolls
US Nonfarm Payrolls, commonly referred to as NFP, is a key economic indicator published by the Bureau of Labor Statistics on a monthly basis.
It represents the total number of paid workers in the US, excluding farm employees, government workers, and non-profit organization employees.
The NFP report provides insights into the overall health of the labor market, reflecting changes in employment levels.
The data is closely watched by policymakers, economists, and investors for its impact on financial markets and economic policy decisions.
US Unemployment Rate
The US Unemployment Rate is a widely tracked economic indicator that measures the percentage of the labor force that is unemployed and actively seeking employment.
It is calculated by dividing the number of unemployed individuals by the total labor force.
The Unemployment Rate can differ from the Nonfarm Payrolls data due to differences in their definitions and methods of measurement.
While NFP represents the total number of paid workers in the US, excluding certain categories like farm and government employees, the Unemployment Rate considers the percentage of the labor force that is actively seeking but unable to find employment.
US Average Earnings YoY
US Average Earnings Year-over-Year is an economic indicator that measures the annual percentage change in the average earnings of all non-farm employees in the United States.
This data is typically derived from the monthly employment reports released by the US Bureau of Labor Statistics.
Average earnings include wages and salaries, and the YoY comparison helps assess the rate of change in workers’ compensation over a one-year period.
Positive growth in Average Earnings YoY is indicative of increasing income levels, while negative growth suggests a decline in average earnings. Policymakers, economists, and investors monitor this indicator for insights into wage trends and their implications for consumer spending and inflation.
What to Expect
US NFP is the most closely watched employment indicator by traders and policymakers alike.
A higher-than-expected read indicates that employment is not slowing down, which poses an upside risk to inflation. This could cause policymakers to keep interest rates higher for longer.
This repricing of the future of US monetary policy could be likely to cause weakness in US stocks, and strength in the dollar. The inverse could also be the case.
Having said this, participants will also be looking at the average earnings data to see if increased wages are also causing potential upside inflation risks.
In the latest comments from Powell and other FOMC officials, they have also noted a refocus back onto the ‘dual mandate’, (which includes employment), so while a slight cooling in the employment situation may be seen as reinforcing dovish Fed bets, too much could go against the other element of the Fed’s dual mandate, and increase recession fears.
10:00 ET
University of Michigan Sentiment
The University of Michigan Consumer Sentiment Index measures the confidence and optimism of US consumers regarding the economy.
Published by the University of Michigan, this index is based on surveys that assess consumer attitudes toward current economic conditions and expectations for the future.
It provides insights into consumer sentiment, which can influence spending patterns. A higher sentiment reading indicates increased confidence, potentially impacting consumer spending, a vital component of economic activity.
It also breaks down into consumer’s 1 and 5-year inflation expectations, which the markets look at to gauge consumer opinions on the future impact of monetary policy on inflation.
What to Expect
In the current stage of the economic cycle, with the Fed tightening at or near the peak, markets are balancing between two things when reacting to this report:
If sentiment comes in much higher than expected, with the inflation projections increasing from the previous reads, this could show that increased consumer demand is creating upside inflation risks and could cause markets to pull back on Fed cut bets this year.
On the other hand, if it comes in just slightly higher than expected, with inflation projections in line or lower than expected, this could prove that consumers are remaining vigilant in the face of high interest rates, increasing the chances of a soft landing.
