Bloomberg Market Concepts Economic Indicators (A GUARANTEED)
Bloomberg Market Concepts
Economic Indicators
The Primacy of GDP
● Main measure of economic activity
● World GDP: 8% compounded annual growth over 50
...
Bloomberg Market Concepts Economic Indicators (A GUARANTEED)
Bloomberg Market Concepts
Economic Indicators
The Primacy of GDP
● Main measure of economic activity
● World GDP: 8% compounded annual growth over 50 years
● How accurately do GDP statistics portray the economy?
○ Inaccurately because the scope of GDP measurements can change
● Economic growth is cyclical, with series of booms and busts
● Investors interpret economy through economic indicators
● Leading indicators attract the most investor interest
Economic statistics
Essential Economic Indicators
● Economic growth
○ Gross domestic product
○ Market value of all final goods and services in a country
○ GDP = C + I + G + (X-M)
○ C = personal consumption
○ I = private investments
○ G= gov consumptions
○ X = exports
○ M = imports
○ Different countries have different emphasis on GDP (example: in America
personal consumption makes up most of GDP, while in China it is Private
investment)
○ Important: percentage change in GDP from one year to the next
○ Nominal GDP - inflation = Real GDP Growth
○ Real GDP growth: only production, taken out inflation effects
○ Recession: 2 successive quarters of negative real GDP growth
● Inflation
○ Erodes value of bonds
○ General increase in prices of goods and services
○ Decreases purchasing power of money
○ Sources of inflation data: quarterly GDP report, monthly CPI
○ CPI needs to be fully representative of consumer spending
○ Inflation basket
○ What was a representative basket yesterday may not be representative today
● Unemployment
○ Consumer spending based on salaries
○ Economy shrinks when unemployment rises
○ GDP growth is depressed when unemployment rises
● Business confidence
○ Business consumers make more investments when they feel confident there will
be a demand for their goods and services in the future○ ISM: gauges business confidence
○ Above 50: optimism
○ Below 50: pessimism
○ PMI and GDP move together
○ PMI is best leading economic indicator
● Housing
○ Housing starts → house building
○ Buying new house = buying new products as well
○ Housing starts against real gdp growth → there is a relationship
Monitoring GDP
● World economic indicators → US
● Check monthly: PMI, nonfarm payrolls (unemployment report), housing, inflation, CPI (in
that order)
● Check if actual is better than surveyed
● First inkling comes from PMI
○ This will tell us about US business confidence
● GDP is released every quarter
○ 1st quarter: end of April
● GDP often fails to surprise because other indicators give hints
● GDP estimation by govs is time-consuming, activity
● GDP arrives too late to be useful to investors
● Instead, glean GDP growth through related indicators
● The indicators that are released first attract the most attention
Forecasting GDP
● Analysts forecast key economic indicators
● Long-term economic estimates are foundational to financial markets
● Changes in estimates illustrates economic optimism and pessimism
● Significant changes may herald an economic turning point
● Investors compile many indicators, rather than one, to predict turning points
● Turning points
● Investment banks create estimates of economic indicators to know when specific
economic data points are a positive or negative surprise
● Economic surprise monitor
○ Surprise moves markets8
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