The Economic Indicator Handbook E-Book

Richard Yamarone

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg Professional
• Sprache: Englisch

Seitenzahl: 387

Veröffentlichungsjahr: 2016

Beschreibung

Analyze key indicators more accurately to make smarter market moves The Economic Indicator Handbook helps investors more easily evaluate economic trends, to better inform investment decision making and other key strategic financial planning. Written by a Bloomberg Senior Economist, this book presents a visual distillation of the indicators every investor should follow, with clear explanation of how they're measured, what they mean, and how that should inform investment thinking. The focus on graphics, professional application, Bloomberg terminal functionality, and practicality makes this guide a quick, actionable read that could immediately start improving investment outcomes. Coverage includes gross domestic product, employment data, industrial production, new residential construction, consumer confidence, retail and food service sales, and commodities, plus guidance on the secret indicators few economists know or care about. Past performance can predict future results - if you know how to read the indicators. Modern investing requires a careful understanding of the macroeconomic forces that lift and topple markets on a regular basis, and how they shift to move entire economies. This book is a visual guide to recognizing these forces and tracking their behavior, helping investors identify entry and exit points that maximize profit and minimize loss. * Quickly evaluate economic trends * Make more informed investment decisions * Understand the most essential indicators * Translate predictions into profitable actions Savvy market participants know how critical certain indicators are to the formulation of a profitable, effective market strategy. A daily indicator check can inform day-to-day investing, and long-term tracking can result in a stronger, more robust portfolio. For the investor who knows that better information leads to better outcomes, The Economic Indicator Handbook is an exceptionally useful resource.

Leseprobe

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Table of Contents

Cover

Title Page

Copyright

Dedication

Acknowledgments

About the Author

Chapter 1: The Daily Blotter

The Economic Calendar

Economist Estimates and Expectations

The Bloomberg Economic Surprise Index

The Events Calendar

The Economic Statistics Table (ECST)

The Powerful Economic Workbench

The Bloomberg Orange Book of CEO Comments

The Treasury and Money Market Rates

The Bloomberg Financial Conditions Monitor

Test Yourself

Answers

Chapter 2: The Business Cycle

Leading, Lagging, and Coincident Indicators

The Chicago National Activity Index

The Yield Curve as a Predictor of the Business Cycle

“Nowcasting” Economic Activity

The Best Representation of U.S. Economic Activity

Test Yourself

Answers

Chapter 3: Gross Domestic Product (GDP)

Composition

Nominal and Real Values

Consumption Expenditures

Investment Spending

Inventories

Government Spending

Net Exports

Deflators

Final Sales

Corporate Profits

Gross Domestic Income

Test Yourself

Answers

Chapter 4: The Labor Market and Employment

Employment and the Business Cycle

Two Measures of Employment: Payrolls and Households

Unemployment

The Labor Force

Hiring of Temporary Workers

Employment Trends of Various Age Cohorts

The Duration of Unemployment

Part-Time and Full-Time Employment

Price of Labor and Earnings

Hours Worked

Leaving the Labor Force

Employment Diffusion Indexes

Related Measures

Test Yourself

Answers

Chapter 5: Retail Sales

Composition

Different Perspectives

Anecdotal Evidence

Luxury Sales

Shortcomings

Corrections

Recent Trends and Influences

The Retail Calendar

Holiday Retail Sales

The Crucial Indicator

Related Measures

Recent Trends

Test Yourself

Answers

Chapter 6: National Federation of Independent Businesses (NFIB) Small Business Economic Trends

Composition

The Business Cycle and the Headline NFIB Index

The Crucial Indicator: Hiring Intentions

Small Business Investment Spending

The Outlook Index and the Economic Performance

The Credit Market and the Small Business Sector

Small Businesses and Inflation

Shortcomings

Related Measures

Test Yourself

Answers

Chapter 7: Personal Income and Outlays

Personal Income

Personal Consumption Expenditures

The Fab Five Indicators of Discretionary Spending

Government Transfer Payments

The “Savings” Rate

Consumer Spending Inflation Measures

Test Yourself

Answers

Chapter 8: Housing and Construction

Overall Construction Spending

Housing Market Index

Housing Affordability Index

Housing Construction Activity

Single-Family Homes and Apartment Construction

Applications for Mortgages

Architect's “Work on the Books”

Home Sales

Home Supply

Home Prices

Test Yourself

Answers

Chapter 9: Manufacturing

Industrial Production and Capacity Utilization

Utility Production

Institute for Supply Management Indexes

Manufacturers' Shipments, Inventories, and Orders

Test Yourself

Answers

Chapter 10: Prices and Inflation

The Consumer Price Index

The Producer Price Index

Commodity and Raw Material Prices

Import Prices

Labor Market Price Activity

Inflation Expectations

Test Yourself

Answers

Chapter 11: Confidence and Sentiment

Tweaking the Confidence Measures

Confidence by Income Status

The Misery Index

Confidence and Big-Ticket Items

Test Yourself

Answers

Chapter 12: The Federal Reserve

Consumer Credit

The Senior Loan Officer Survey

The Flow of Funds Report

The Philadelphia Fed Economic Measures

The Chicago Fed's Midwest Economy Index

The Cleveland Fed's Inflation Expectations Index

The San Francisco Fed's Tech Pulse Index

The New York Fed's Empire State Survey

The Richmond Fed Surveys

The Dallas Fed Surveys

The Kansas City Fed Manufacturing Survey

Test Yourself

Answers

Sources and Additional Reading

Index

End User License Agreement

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Guide

Table of Contents

Begin Reading

List of Exhibits

Chapter 1: The Daily Blotter

Exhibit 1.1 The Economic Calendar

Exhibit 1.2 Economist Estimates

Exhibit 1.3 Economist/Firm Forecast History

Exhibit 1.4 The Economic Surprise Monitor

Exhibit 1.5 Events Calendar

Exhibit 1.6 Economic Statistics Table

Exhibit 1.7 Economic Workbench

Exhibit 1.8 The Bloomberg Orange Book of CEO Comments

Exhibit 1.9 Bloomberg Treasury and Money Market page

Exhibit 1.10 Bloomberg Financial Market Conditions Monitor

Exhibit 1.11 Bloomberg Financial Market Conditions Index—History

Chapter 2: The Business Cycle

Exhibit 2.1 NBER Recession Indicators (Y/Y%)

Exhibit 2.2 Conference Board Coincident Economic Index

Exhibit 2.3 Conference Board's Index of Leading Economic Indicators, Real GDP %

Exhibit 2.4 Coincident to Lagging Ratio

Exhibit 2.5 Chicago Fed National Activity Index

Exhibit 2.6 Yield Curve

Exhibit 2.7 Atlanta Fed GDPNow Forecast

Exhibit 2.8 Philadelphia Fed GDPplus and Real GDP

Chapter 3: Gross Domestic Product (GDP)

Exhibit 3.1 GDP Breakdown—History

Exhibit 3.2 GDP Component Composition, %

Exhibit 3.3 Real and Nominal GDP (Y/Y%)

Exhibit 3.4 Real GDP (Y/Y%) versus Recessions

Exhibit 3.5 Personal Consumption Expenditures

Exhibit 3.6 Investment Spending

Exhibit 3.7 Change in Private Inventories

Exhibit 3.8 Government Spending

Exhibit 3.9 Net Exports as a % of GDP

Exhibit 3.10 U.S. Imports and Exports (Y/Y%)

Exhibit 3.11 GDP Deflator (Y/Y%)

Exhibit 3.12 Real Final Sales of Domestic Product (Y/Y%)

Exhibit 3.13 GDP versus Nonfarm Payrolls (Y/Y%)

Exhibit 3.14 U.S. Corp Profits after Tax YoY%

Exhibit 3.15 Output Gap

Exhibit 3.16 Gross Domestic Income (Y/Y%)

Chapter 4: The Labor Market and Employment

Exhibit 4.1 NFP versus Real GDP

Exhibit 4.2 Establishment versus Household Employment

Exhibit 4.3 Final Sales versus Nonfarm Payrolls

Exhibit 4.4 Composition of Employment: Services, Goods

Exhibit 4.5 Unemployment Rates—Various Measures

Exhibit 4.6 Labor Force Participation Rate

Exhibit 4.7 Temporary Staffing

Exhibit 4.8 Unemployment Rate Ages 25–34 versus New Home Sales

Exhibit 4.9 Median Weeks Unemployed

Exhibit 4.10 Part-Time, Full-Time Employment

Exhibit 4.11 Average Hourly Earnings

Exhibit 4.12 Average Weekly Hours

Exhibit 4.13 Ratio of Total Persons Not in Labor Force versus Total Labor Force

Exhibit 4.14 Diffusion Indexes

Exhibit 4.15 Claims versus Real GDP

Exhibit 4.16 Four-Week MA Initial Claims

Exhibit 4.17 ADP, Nonfarm Payrolls

Exhibit 4.18 JOLTS Openings, Hires

Exhibit 4.19 Unemployed per Job Opening

Exhibit 4.20 Challenger Layoffs Survey

Chapter 5: Retail Sales

Exhibit 5.1 Retail Sales Excluding Autos (Y/Y%)

Exhibit 5.2 Retail Sales Month-to-Month

Exhibit 5.3 Retail Sales Composition

Exhibit 5.4 GAFO per Capita Disposable Income

Exhibit 5.5 Retail Luxury versus S&P500

Exhibit 5.6 Retail Sales Gas versus Gas Prices

Exhibit 5.7 Retail Sales Gas versus CPI Gasoline

Exhibit 5.8 Real Retail Sales

Exhibit 5.9 General Merchandise Percentage of Total Retail Sales Excluding Autos

Exhibit 5.10 E-commerce Sales

Exhibit 5.11 Level of Employment in Apparel and Sporting Stores

Exhibit 5.12 Retail Calendar

Exhibit 5.13 Holiday Sales (GAFO November and December) (Y/Y%)

Exhibit 5.14 Retail Sales for Food Services and Drinking

Chapter 6: National Federation of Independent Businesses (NFIB) Small Business Economic Trends

Exhibit 6.1 NFIB Optimism Index with Recessions

Exhibit 6.2 NFIB Optimism Index versus Index of Coincident Indicators

Exhibit 6.3 NFIB Hiring Plans Index versus Unemployment Rate

Exhibit 6.4 NFIB Small Businesses Capital Expenditure Plans Index versus Non-residential Fixed Investment

Exhibit 6.5 NFIB Good Time to Invest Index versus GDP Y/Y%

Exhibit 6.6 NFIB Outlook for General Business Conditions Index versus Coincident Economic Indicator

Exhibit 6.7 NFIB Credit Conditions Availability of Loans Index versus Net Percent of Domestic Respondents Reporting Stronger Demand for Commercial and Industrial Loans from Small Firms

Exhibit 6.8 NFIB Higher Price Index versus CPI Y/Y%

Exhibit 6.9 NFIB Sales Expectations Index versus Retail Sales Excluding Autos

Exhibit 6.10 NFIB Actual Earnings Changes Index versus Actual Incomes Index

Exhibit 6.11 NFIB Optimism Index versus University of Michigan Consumer Sentiment Index

Exhibit 6.12 NFIB Single Most Important Problem

Exhibit 6.13 NFIB Small Optimism Index versus Industrial Production versus ISM's Purchasing Manager's Index

Chapter 7: Personal Income and Outlays

Exhibit 7.1 Personal Incomes

Exhibit 7.2 Calculating Total Level of Personal Income

Exhibit 7.3 Real Disposable Personal Incomes, Real GDP

Exhibit 7.4 Real Disposable Personal Income per Capita, Real Consumer Spending

Exhibit 7.5 Composition of Consumer Spending

Exhibit 7.6 Consumer Spending and Nonfarm Payrolls (Y/Y%)

Exhibit 7.7 Fab Five—Dining Out

Exhibit 7.8 Fab Five—Casino Gambling

Exhibit 7.9 Fab Five—Jewelry and Watches

Exhibit 7.10 Fab Five—Cosmetics and Perfumes

Exhibit 7.11 Fab Five—Women's and Girls' Clothing

Exhibit 7.12 Transfer Payments as a Percent of Disposable Income

Exhibit 7.13 Personal Saving as Percentage of Disposable Personal Income

Exhibit 7.14 Personal Consumption Expenditure Deflator, Core (Y/Y%)

Chapter 8: Housing and Construction

Exhibit 8.1 Residential Investment as a Percentage of GDP

Exhibit 8.2 Construction Spending (Y/Y%)

Exhibit 8.3 Housing Market Index

Exhibit 8.4 Housing Affordability Index

Exhibit 8.5 Housing Starts, Permit Applications

Exhibit 8.6 Housing Starts—1, 5+ Units

Exhibit 8.7 MBA Purchase Index

Exhibit 8.8 Architect Billings Index, Construction Spending (Y/Y%)

Exhibit 8.9 Existing Home Sales

Exhibit 8.10 New Home Sales

Exhibit 8.11 New and Existing Home Supply, in Months

Exhibit 8.12 S&P/Case-Shiller Home Price Index

Chapter 9: Manufacturing

Exhibit 9.1 Industrial Production versus GDP (Y/Y%)

Exhibit 9.2 Industrial Production of Consumer Goods

Exhibit 9.3 Industrial Production versus Manufacturing Payrolls

Exhibit 9.4 Capacity Utilization, Fed Funds Rate

Exhibit 9.5 Industrial Production—Utilities (Y/Y%) 6-Month MA

Exhibit 9.6 ISM PMI and Real GDP (Y/Y%)

Exhibit 9.7 ISM PMI, ISM Exports, U.S. Exports (Y/Y%)

Exhibit 9.8 New Orders Index-Inventories Index, Real GDP (Y/Y%)

Exhibit 9.9 ISM Prices Index, Producer Prices Index (Y/Y%)

Exhibit 9.10 Durable Goods Orders (M/M%)

Exhibit 9.11 Durable Goods Orders and Shipments (Y/Y%)

Exhibit 9.12 New Orders for Nondefense Capital Goods Excluding Aircraft, Nonresidential Equipment Spending (Y/Y%)

Exhibit 9.13 Total, Nondurable, and Durable Shipments

Exhibit 9.14 Total Factory Orders, Industrial Production, Total Factory Shipments (Y/Y%)

Exhibit 9.15 Inventory-to-Shipments Ratios: Manufacturing, Wholesale, Retail

Chapter 10: Prices and Inflation

Exhibit 10.1 Consumer Price Index (CPI), Core CPI (Y/Y%)

Exhibit 10.2 Cleveland Fed Median CPI, and the Consumer Price Index (Y/Y%)

Exhibit 10.3 Producer Price Index Final Demand, Core PPI (Y/Y%)

Exhibit 10.4 Producer Price Intermediate, Excluding Food and Energy, Fed Funds Rate (%)

Exhibit 10.5 Bloomberg Commodity Index, China GDP (Y/Y%)

Exhibit 10.6 Crude Oil Prices, Nominal GDP (Y/Y%)

Exhibit 10.7 JOC-ECRI, IP (Y/Y%)

Exhibit 10.8 Copper and World GDP (Y/Y%)

Exhibit 10.9 Gold GDP Deflator (Y/Y%)

Exhibit 10.10 The Baltic Dry Index

Exhibit 10.11 Import Prices—Various Measures

Exhibit 10.12 Unit Labor Costs—Various Measures

Exhibit 10.13 The Employment Cost Index

Exhibit 10.14 The Breakeven Rates, CPI (Y/Y%)

Chapter 11: Confidence and Sentiment

Exhibit 11.1 Conference Board Consumer Confidence, Real GDP (Y/Y%)

Exhibit 11.2 University of Michigan Sentiment, Index of Coincidental Indicators

Exhibit 11.3 Bloomberg Comfort, Personal Finances, NFP

Exhibit 11.4 Conference Board (Present-to-Expectations Spread), Disposable Personal Income (Y/Y%)

Exhibit 11.5 Conference Board Jobs Plentiful and Jobs Hard to Get, Unemployment Rate

Exhibit 11.6 Bloomberg National Economy Diffusion Index, Real Consumer Spending (Y/Y%)

Exhibit 11.7 Conference Board Confidence by Incomes

Exhibit 11.8 Conference Board Confidence by Age

Exhibit 11.9 Conference Board Confidence, Misery Index

Exhibit 11.10 University of Michigan Inflation Expectations, CPI (%)

Exhibit 11.11 University of Michigan Sentiment, Expectations, Gasoline Prices

Exhibit 11.12 Conference Board Personal Finances, Wages, and Salaries (Y/Y%)

Exhibit 11.13 Consumer Confidence, S&P 500 (Y/Y%)

Exhibit 11.14 University of Michigan Sentiment Incomes (Top, Middle, Bottom 33%) Existing Home Sales

Exhibit 11.15 Michigan Confidence Buying Conditions for Large Durables (Top, Middle, Bottom 33%)

Chapter 12: The Federal Reserve

Exhibit 12.1 The Fed Funds Rate and GDP Deflator

Exhibit 12.2 Commercial & Industrial Loans and Nonresidential Business Investment

Exhibit 12.3 Consumer Installment Credit

Exhibit 12.4 SLOOS: Lending Standards and Demand for C&I Loans

Exhibit 12.5 Flow of Funds—Household Net Worth

Exhibit 12.6 Philadelphia Fed Manufacturing Business Outlook Survey

Exhibit 12.7 The Aruoba-Diebold-Scotti Business Conditions Index

Exhibit 12.8 Federal Reserve Bank of Chicago Midwest Economy Index

Exhibit 12.9 Cleveland Fed Inflation Expectations Index

Exhibit 12.10 San Francisco Fed Tech Pulse Index

Exhibit 12.11 New York Fed Empire State Manufacturing Survey

Exhibit 12.12 The Richmond Fed Index and Retail Sales

Exhibit 12.13 Dallas Fed Trimmed Mean Deflator

Exhibit 12.14 Kansas City Fed Manufacturing Index, Employees and Crude Oil

THE ECONOMIC INDICATOR HANDBOOK

How to Evaluate Economic Trends to Maximize Profits and Minimize Losses

Richard Yamarone

Copyright © 2017 by Richard Yamarone. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials.The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Cover Design: Wiley

Cover Images: Blue Whispy Flow © colecom/Getty Images, Inc.;

GDP data chart, Reprinted with permission of Bloomberg LP

Dedicated to the loving memory of Milton and Nash Yamarone.

Acknowledgments

This project is overwhelmingly related to economics as seen from the Bloomberg terminal. So it is only natural that I express my gratitude to the countless—and I do mean countless—Bloomberg employees that have provided invaluable help over the last 20-plus years that I have been associated with Bloomberg either as a client (since 1992) or as an employee (October 26, 2009). There's a real reason why Bloomberg, LP is so successful, and it is undoubtedly due to its employees. I've never seen such dedication to a company and to the client in my more than 30 years on the Street. If you know anyone that has ever worked at Bloomberg, you know exactly what I am talking about.

I have the great fortune to work with some of the brightest and hardest-working people in all of business. At any hour of the day or evening, weekend, or holiday, I feel I could reach out with an issue and get an immediate response…that's an incredible team to draw upon. I call each of them my friend as well as co-worker.

My thanks are extended first to the Bloomberg Intelligence Economics team. At the top is Mike McDonough, the global director of economics who has set up this solid powerhouse and is responsible for making it the preeminent economic research group on all of Wall Street that it is today. He is a great leader. Carl Riccadonna is the sharpest economist I have ever worked with and is the best “big picture” economics writer on the Street today; I learn from him every day. Yelena Shulyatyeva has a gifted ability to find the most meaningful detail in economic indicators, draw intelligent inferences, and place them in a macro context. She does this masterfully, despite having the tremendous misfortune of having to sit next to me for over 10 hours a day. Bless you.

Many thanks go to the rest of the team, including Richard Marquit, Felipe Hernandez, Marco Maciel, Jaime Murray, Tom Orlik, David Powell, Niraj Shaw, Mark Bohlund, Dan Hanson, Maxime Sbaihi, Tamara Henderson, Fielding Chen, Yuki Masujima, and Tricia Franceschina. Special thanks to James Callan, the brilliant editor that takes my scribblings and polishes them into coherent commentary.

Bloomberg Intelligence is an incredible research group, undoubtedly the best on the Street, and as helpful as they are insightful. Imagine what a joy it is (especially as an economist) to be able to draw upon the knowledge from industry legends—yeah, legends—like Poonam Goyal, Ken Hoffman, Kevin Tynan, Kit Konolige, Paul Sweeney, Josh Zaret, Lee Klaskow, John Butler, Karen Ulbelhart, and Jason Miner. Seriously, who couldn't form an accurate economic perspective with so many talented professionals feeding the information channel with top-tier insights and analyses? Additional thanks are extended to Richard Salditt, Dragos Aoloie, and Mike McGlone.

There are countless employees around the globe that I work with only on occasion, but have helped me beyond measure. This includes my personal friend, Janice Slusarz; I couldn't ask for a better friend. In Multimedia there is another dear friend, Julie Hyman—I am very lucky to call her a friend. In addition, my many thanks are extended to Matt Miller, David Westin, Ted Fine, Pimm Fox, Mike McKee, Tom Keene, Kathleen Hays, Vonnie Quinn, Taylor Riggs, David Sucherman, Paul Brennan, Sam Lenga, Carol Massar, John Tucker, Cory Johnson, Emily Haas-Godsil, Paris Wald, Vielka Todd, Richard Trueman, Charlie Pellet, Rachel Wehrspann, Erik Schatzker, Joe Weisenthal, Courtney Donohoe, Lisa Abramowicz, Scarlet Fu, Mark Crumpton, and Bob Moon.

I could fill an entire book with the hundreds of salespeople that I have worked with over the last seven years, who have taught me so much about the importance of the client during the close to a thousand presentations, speeches, and one-on-one meetings I have had with our clients and prospects. My hat is tipped to Matt Nolfo, the King of university sales. No one compares to you and your seemingly never-ending ability to let people know the power of the terminal. Tom Rogers, Kevin G. Murphy, Annie Sears, Stephen Smith, Ariel Pariser, Thomas Pennella, Alex Shomber, Logan McClennan, Wayne Pasternack, Mary Briatico, Caroline Bauer, Craig Kesten, and Chris Piekarski.

My gratitude is also extended to other colleagues that I indirectly work with, including Hillary Conley, Peter Coy, Dorothy Lata, Shelly Banjo, Deirdre Fretz, James Crombie, Ben Baris, Anne Riley, Joe Mysak Jr., Jackie Jozefek, Mary Ann Thomas, Steven Moy, Mike Nol, Doug Simmons, Rose Constantino, Florent Ouelle, Mike Finnegan, Clifton Simmons, David Noguerol, Tony Bolton, Derek Pryor, Monica Betran, Jacqueline Thorpe, Caitlin Noselli, Vince Golle, Vinny DelGuidice, Alex Tanzi, Vivien Lou Chen Sho Chandra, and Doug Edler. And to a true Bloomberg giant, Ted Merz, you are a wonderful source of wisdom; I consider you a very valuable friend.

I must express my most sincere thanks to a true diamond at Bloomberg, Reileen Brown. You have saved me on hundreds of occasions. Without you, I would be lost…literally.

To the thousands of clients with whom I interact, thanks for all of your thoughts, comments, and idea-generating conversations. You have contributed to this project in more ways than you may realize. Along these lines, I must extend thanks to the near 700 members of the Bloomberg Macro Economic Chatroom. I cannot divulge any individual members—it is an anonymous chatroom—but I must tell you there are numerous occasions where members have inspired me to read, study, and learn about specific topics and economic issues weeks ahead of them appearing in the broader business press.

Thank you all.

About the Author

Richard Yamarone is a Bloomberg senior economist with more than three decades of experience on monetary and fiscal policy, economic indicators, fixed income, commodities, and general macroeconomic conditions.

As a member of Bloomberg Intelligence–Economics, he is a contributor to the Real-Time Economics product that features analysis, data, and news on the forces shaping the global economy. Mr. Yamarone and the Bloomberg Intelligence–Economics team provide in-depth analysis of macroeconomic data, policy, and trends and how they will impact financial markets.

He is also the creator of the Bloomberg Orange Book of CEO Comments, a compilation of macroeconomic anecdotes gleaned from comments C-suite executives made on quarterly earnings conference calls. He travels extensively to speak to clients and corporate executives on the economic outlook, public speaking, and career and management coaching. The author of Trader's Guide to Key Economic Indicators (Bloomberg Press, 2012), Mr. Yamarone is a member of the National Association for Business Economists, the American Economic Association, the New York State Economics Association, and the Money Marketeers of New York University. He has won numerous accolades for his work, including being featured as one of the top 10 economists in the United States by USA Today in 2007 and “Nostradamus of the Financial Industry” by Bank Advisor in 2008 for his prediction of the financial crises.

Chapter 1The Daily Blotter

Perhaps the best way to appreciate the most important and meaningful economic indicators used by Wall Street economists is to present them in the manner that they are used by those professionals. Every bank, money manager, hedge fund, or financial institution has an interest in economic indicators, and each of those producing the analysis possesses their own individual routine in which they obtain the data, produce a product, and disseminate their respective analysis. For the most part, Wall Street economists use the Bloomberg Professional service for their data, write a daily newsletter—with oftentimes several updates a day—and send it electronically to their clients, investment professionals, and the media.

This chapter attempts to present the most important information used on Wall Street trading desks, and how the desk economist goes about prepping for the day, understanding and appreciating anything that might move the financial markets or alter the outlook for the economy.

The traditional market reaction to news, events, and economic data—particularly the top tier economic indicators—is usually with respect to what insight the news brings to the entire financial market. While some equity analysts use economic releases to determine the trends in some of their respective industries and stocks, most investment professionals look to see how information will influence the broader markets.

For example, should news break about a refinery fire at an integrated oil company, then there may be an immediate negative reaction to that specific company's stock price. Depending on how severe the damage was to its facilities and how long that refinery would be out of commission would dictate the value of the price adjustment. Similarly, if the refinery was large, producing a tremendous amount of gasoline, then the lost supply could disrupt the commodity market, and send prices higher. This wouldn't upset the entire stock, bond, or currency market, with the damage being concentrated in just the trading of some energy products.

When a major economic release hits the newswires, market participants look at the details with respect to how the information contained in the report will influence the prices of a security.

When economic releases are better than expectations, that is, with a positive or bullish implication, equity prices rise and bond prices fall. Yields on bonds (or fixed-income securities) rise since they are inversely related to prices). The economics behind this is that a stronger economic posting like a large number of jobs added in a month, an increase in the orders for durable goods, or an extremely upbeat reading in consumer confidence, implies companies will be conducting a greater amount of business, which is good for revenues and profits.

The reaction to strong economic data in the fixed income market would be very different. Stronger economic conditions possess potentially inflationary conditions. An increase in demand or production is usually accompanied by greater prices. So exceptionally stronger gains in activity are viewed as inflationary, which erodes the value of a fixed income security. The yields on those bonds would rise since they are inversely related.

The opposite holds true for weak economic reports. In the event that one of the manufacturing condition surveys is less than expectations, industrial production contracts, or housing starts fall, stock prices would sour on that news and bond prices would rise (yields would fall).

While each Wall Street economist has varying responsibilities and individual routines, they do share some common traits. Knowing what releases are scheduled for any given day is atop that list. The economic calendar is so important that vacations and time off is planned around economic releases by order of importance. You never call in sick or walk in late for an Employment Situation release, an FOMC meeting, or a day when three or more top-tier indicators are slated for release.

The Economic Calendar

The Bloomberg calendar depicted in Exhibit 1.1 may be obtained by typing ECO <GO> on the Bloomberg Professional terminal. It is the most comprehensive and trusted source for releases in all of finance, detailing the name of the release, date, time, previous value, and the current Street consensus estimate. There's also a relative importance graph identifying how the Street views each index—the larger the number of subscription alerts there are for an individual indicator, the greater the number of bars highlighted in the bar graph located in the “R” column (relative importance) to the left of the Event column. In the associated exhibit, the ISM Milwaukee index clearly is not considered to be as important as the Chicago Purchasing Managers Index.

Exhibit 1.1 The Economic Calendar

Source: Bloomberg

The Bloomberg ECO calendar may be customized to include economic releases like durable goods orders and economic events like speeches by policy makers or Federal Reserve Open Market Committee meeting announcements. The addition of all the government conferences and speeches like those from the secretaries of the Departments of Treasury or State are also available. All Treasury financing auctions are listed as well. Even the commodity reports such as crop conditions or crude oil inventory levels are available. While we are only addressing the U.S. economic indicators, the ECO calendar is available for 189 countries and regions (e.g., Eurozone, G8, G20).

Traders, analysts, and economists always want to know what the market is thinking, so when an economic release hits the tape, they know whether the report is stronger, weaker, or in line with Street expectations.

With respect to the calendar on economic releases, right-clicking on any of the indexes will reveal the detail of all those economists polled and their respective forecast history for that specific indicator (ECOS). The most popular economic releases possess upwards of 100 individual forecasts.

Economist Estimates and Expectations

Once in the calendar on economic releases, right-clicking on any of the indexes reveals the Street expectations, as seen in Exhibit 1.2. Here we see the graphical distribution for nonfarm payroll estimates by 74 economists, as well as the average, median, high, low, and standard deviation. There is also a ranking of the economist for that indicator in the lower-right-hand corner, which is based on two years of contributed estimates.

Exhibit 1.2 Economist Estimates

Source: Bloomberg

Then, clicking again on an individual economist or firm reveals a chart of the forecasting history of that particular forecaster for that economic release (Exhibit 1.3), as well as the median and actual number. You can also select several economists at a time. Now we are capable of seeing just how good some are at the estimating game.

Exhibit 1.3 Economist/Firm Forecast History

Source: Bloomberg

And since we have the Street estimates for dozens of indicators—and history—we can plot to see how far off the experts as a consensus were with respect to the actual number. Exhibit 1.4 shows the Economic Surprise Monitor (ECSU <GO>), which contains a dashboard of the latest top-tier indicators and their associated postings (by date) and the amount that each differed from the survey median as polled by Bloomberg, divided by the survey standard deviation.

Exhibit 1.4 The Economic Surprise Monitor

Source: Bloomberg

The Bloomberg Economic Surprise Index

The Bloomberg Economic Surprise Index (ESI) shows the degree to which Street economists either under- or overestimate those top-tier indicators posted in ECO <GO>.

When the actual number exceeds the Street estimates, it's a sign that the measured performance of a particular economic indicator bettered Street expectations, implying the economy may be performing better than the pros believe. Conversely, lower actual values suggest weaker economic conditions compared to what the forecasters believe. The associated exhibit lists the most recent releases in the Bloomberg ECO U.S. Surprise Index and whether they missed to the up side (green) or to the down side (red).

Formal releases of economic data aren't the only incidents that move the market or may change the outlook of the economy. The daily events calendar is an extremely important tool used in the analysis of the economic environment. While there are rarely specific data or indexes revealed in the countless events that occur during any given trading session, there are nuggets of information in many of the conference calls or releases—the sharp analyst just has to know where to look.

Most analysts and economists know days in advance about what is on the docket regarding investor meetings, industry or bank-sponsored conferences, earnings calls, corporate updates, annual meetings, and special company announcements like a merger or acquisition. The Bloomberg Events Calendar in Exhibit 1.5 (EVTS <GO>) identifies one page of the thousands that exist on the terminal.

Exhibit 1.5 Events Calendar

Source: Bloomberg

The Events Calendar

The company is identified, as well as a description of the event type. Where applicable, the dial-in number is listed along with the necessary PIN code in the event that the listener would like to call in directly and ask questions.

The last five columns are functions that permit the user to read the associated press release (P), download a PDF file of the transcript of the entire conference call (T), read a transcript summary (S), listen to an audio file of the entire conference call (A), or sync the event to your calendar (C). These, of course, are all archived and available on an historical basis.

To be sure, not every call will generate insight to the goings on of the economy. But the wise desk economist should listen to (or read the transcripts of) the most economically sensitive companies that may be complaining of a high-interest-rate environment, stagnant spending by the consumer, or high input prices. Just about anything that can disrupt a company's performance will be mentioned in these calls. Many times, the comments made by executives on these calls forewarn changes in the economic data.

In Exhibit 1.5, it would be wise to listen to what Home Depot, Wal-Mart, and TJX Companies might have to say. The information contained in those calls might identify the underlying tone of the consumer. And since the consumer is responsible for a large portion of economic activity, the anecdotes can be invaluable to the forecasting process.

Having a treasury of economic data is essential for every economist or analyst. The Bloomberg Professional terminal provides a trove of economic and financial market data ranging from the common government reports and all the associated detail like GDP, consumption expenditures, the price indexes, and the confidence measures to the more obscure North American rail carloads of forest products. Just think of how valuable the latest data on industrial production of veneer, plywood, and engineered wood products, the retail price of carbonated drinks, or the number of persons employed in museums, historical sites, and parks can be to a housing, beverage, or not-for-profit industry analyst.

The Economic Statistics Table (ECST)

As Exhibit 1.6 highlights, the data are available on tens of thousands of indicators and are easily searchable and downloadable with a mere click on the menu—all in one place.

Exhibit 1.6 Economic Statistics Table

Source: Bloomberg

Having the ability to work with data is also critical in the analysis process. All of the charts in this book were created using data from the Bloomberg terminal, and almost all have been produced in the Economic Workbench (ECWB <GO>). This function permits you to “play” with data. That is, insert different indicators or indexes and look at relationships, ideally identifying the temperature of the economic climate or other key indicators to better appreciate the tone of an industry, the possible direction of a stock or bond, or changes in the business cycle.

The Powerful Economic Workbench

Exhibit 1.7 displays the Bloomberg Economic Workbench. Basically, this is a charting tool. Any of the historical data on the terminal may be loaded into a field and then altered to identify a particular pattern or association. Sometimes economists want to compare data that are reported in different bases, like a quarterly GDP and weekly initial jobless claims, or daily commodity prices and monthly producer price indexes.

Exhibit 1.7 Economic Workbench

Source: Bloomberg

In Exhibit 1.7, we chart the U.S. Treasury cash balance of federal tax deposits withheld from employment income and tax receipts against the monthly nonfarm payrolls. The economic explanation behind this is that the more people employed, the greater will be the amount of tax withholdings by the federal government.

There are several other applications that analysts like to apply to data such as moving averages—especially for volatile economic time series or for high frequency daily or weekly data. Year-over-year analysis of indicators is often the best perspective used on the Street, since this smooths so many fluctuations that may occur in data that are presented week-to-week, month-to-month, or quarter-to-quarter. In this book, the majority of data are presented on a year-over-year basis.

Other transformations frequently used in economic analysis are aggregation, whereby data points are summed or averaged. There are times when only the last data point of the month is desired. In addition, the analyst might like to perform many different applications like absolute values, logarithms, exponential, and power transformations.

Because economic indicators can adopt a leading, lagging, or coincident nature, the ability to transform the data by leading or lagging a few periods is also a common analytical tool that economists perform on data. Some indicators are lagged by sizable periods—five or six months, or even a year. You'll want to be able to make these adjustments to the many indicators.

Nearly all of the major trading floors have a morning squawk. During this internal broadcast, market participants—particularly those on the trading floor—are alerted to the top events, earnings announcements, and economic data.

Basically, this is a condensed and informative interpretation of the events and economic calendars. Discussions about potential market trends and possible market conditions are also mentioned. This is also a forum for analysts to pitch ideas, as well as investment products and securities, to the salespeople. Bloomberg has a version called the First Word Audio Squawk, and can be accessed on the terminal by typing SQUAWK <GO>.

Another type of communication on the Street is called the hoot-and-holler, whereby an economist would analyze the economic releases as they hit the tape. Admittedly, these instant analyses were much more prevalent in the 1970s through 1990s, but there are a few trading institutions that carry on this live interpretation of the data.

The task of the hoot-and-holler is not one for an amateur and is extremely difficult; a mere slip can cost traders millions. You have to be aware of the underlying market conditions, particularly the fixed-income market, and you must know what the Street expectations for the release are. It's also important to know how the markets will react to economic releases.

The Bloomberg Orange Book of CEO Comments

The Bloomberg Orange Book of CEO Comments (Exhibit 1.8) is a creation born out of the need to improve an existing, and somewhat staid publication used by policy makers, the Beige Book. Every seven weeks or so—eight times a year—the Federal Reserve releases the Beige Book Summary of Commentary on Current Economic Conditions by Federal Reserve District. This is essentially a compilation of anecdotes gathered by economists in each of the Fed's 12 districts. Once collected, the Fed economists strip away the source information (the name of the person or company making the comment) and don't offer a date of when the comments were made.

Exhibit 1.8 The Bloomberg Orange Book of CEO Comments

Source: Bloomberg

The Bloomberg Orange Book of CEO Comments is assembled by reading some 300 quarterly earnings transcripts of the most economically sensitive companies and extracting the most economically relevant comments by C-suite executives. Anything related to hiring, inflation, capital spending, interest rates, growth, spending, consumer developments, global economic conditions, or confidence makes it to the Orange Book. They are all collated by company and posted to the terminal. These are the actual unedited comments made by executives, identified by the person making the comment and the date that it was made.

By typing ORANGE <GO> on the Bloomberg terminal, you will access the history of all entries, ordered by several different classifications. By clicking on a sector in the pie chart on the Orange Book page depicted in Exhibit 1.8, any of the companies may be found. So, for example, if you wanted to know the comments made by executives in the energy sector, a mere click would reveal the comments made by Hess, Chevron, Halliburton, or Arch Coal.

In addition, there is a search function that permits the user to filter comments by Fed District. So, if you wanted to mimic the Fed's Beige Book by district, you simply check the regional bank on the left, say Atlanta, and all the comments made by executives that are headquartered in the district will be revealed—for example, in the Atlanta District: Flowers Foods, UPS, Coca-Cola, Beazer Homes, Home Depot, and so on.

One of the more useful functions of the Orange Book is to identify trends in specific economic conditions. By entering a specific phrase of word like deflation, job cuts, or Obamacare in the <Narrow Search> field, any mention of those terms from a conference call would appear.

This makes the analysis of so many topics and themes considerably easy. With the Bloomberg Orange Book, you can learn what is on the minds of some of the most important business people in the United States.

In addition, the company transcripts are each scored with respect to its tone—that is, positive, negative, or neutral. Admittedly, the overwhelming majority (usually 290 of 300) are neutral since every conference call doesn't exude a definitive tone. But it is quite evident when a company is downbeat or sanguine about the economic outlook. Keep in mind, the gist of the Orange Book is not to understand how an individual company is performing, but what their perceptions are regarding the U.S. economic situation. A company can have stellar financial results, soaring earnings and escalating profits, but if they mention a near-term recession or a mass furlough of workers that might be scored a “negative.” This is another reason so many companies are graded as “neutral,” C-suite officials don't always mention the economic assessment.

Economists need to know where the financial markets are trading throughout the session, particularly those of Treasuries and currencies. The equity market is a very important measure as well, but its relevance is somewhat limited since it is not open as long as the fixed income and currency market. For example, when an economic release hits the tape at 8:30 a.m. ET—as so many major reports do—the U.S. stock market hasn't begun trading and will not for another hour. Not only will the fixed-income and currency markets be open and trading for the majority of economic releases, but in the event that some news or event breaks overseas (in Europe, Asia, or Africa and the Middle East) and overnight, bonds and currencies will trade with respect to the circumstances.

The Treasury and Money Market Rates

One of the more informative sources for all of this information—and more—is the Bloomberg Treasury and Money Market page (BTMM <GO>) and is depicted in Exhibit 1.9. This is essentially a summary of the more important measures and indicators that trade throughout the day. Circled are the “on the run” Treasuries (the latest issues for the major maturities) and currencies of five of the most popular traded currencies with respect to the U.S. dollar, which is the world's reserve currency.

Exhibit 1.9 Bloomberg Treasury and Money Market page

Source: Bloomberg

There are also many money market instruments including commercial paper, 90-day euro dollar futures, LIBOR fixings, and Fed funds futures. There are a few major stock market aggregates like the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite.