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- Business
Inventories And Sales:
- These
figures measure the inventories and sales of manufacturing, wholesalers,
and retail establishments. These figures are released monthly by the
Bureau of Census. In most cases, an increase in these numbers indicates
an expanding economy which could be inflationary. Bond Market Moves
Down In Price.
- 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 percent- age indicates
a stronger manufacturing sector and an expanding economy which can be
inflationary. Bond Market Moves Down in Price.
- 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.
- 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.
- 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 which, in turn, affects
interest rates. There is an inverse relationship between interest rates
and bond prices. If the economic indicators indicate that the rate if
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.
- Factory
Orders:
- 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.
- FED
Is Easing:
- 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.
- FED
Is Tightening:
- This
term refers to efforts by the Federal Reserve to curb excessive growth
in the money supply. This can be accomplished by their raising the discount
rate and/or increasing the federal funds rate. Bond Market Moves Down
In Price.
- 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 Prices.
- 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.
- 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).
- 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. When imports are higher than exports, there is a deficit.
The import-export differential is referred to as the trade gap.
- Money
Supply:
- 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.
- 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.
- 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 tend to lead other measures of inflation. Bond Market Moves
Down In Price.
- 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.
- 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 and is, therefore, 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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