Download I. Consumer Spending & Confidence

Special Topics in Economics
Econ. 491
Chapter 3:
Understanding Economic Indicators
(Consumer Spending, Housing &Trade Data )
I. Consumer Spending & Confidence
 Retail Sales Index:
- Measures the total sales by retail establishments,
including food services.
- The retail sales data are adjusted for normal seasonal
variation and holidays . The index is monthly
released.
- These data come from a small sample of retailers (
about 4100 retailers in the case of USA). Survey
forms are mailed to retailers 5 days before the close of
reporting month.
- Unusual weather, changes in the timing of holidays,
tax law changes can influence monthly retail sales
figures. HOW!!
- In dollar value, this data is the largest single input
into the estimation of total consumer spending.
- It also reflects the purchasing activity of consumers
and their demand for all types of goods ( durable and
nondurable goods).
- Therefore, higher retail sales figures have a direct
impact on the market. HOW!!
- Think of the relationship between the change in the
retail sales and the local currency?
-What if central bank tightens the monetary policy?
- What if the central bank eases the monetary policy?
 Personal Consumption Expenditures:
- Recall: measuring household spending for all goods
and services ( it comprises roughly 70% of US GDP).
- The data are broken into three broad categories:
durable goods, nondurable goods, and services.
- Retail sale data are the key input into the calculation
of Personal Consumption Expenditures.
 Consumer Confidence Index :
- These data are complied from a monthly survey ( of
about 5000 households in the case of USA).
-Respondents asked about their perceptions of
national economic conditions, their personal
circumstances, and their buying plans for new homes,
various durable goods, and vacations.
- the survey includes a question about “whether
respondents see jobs” as plentiful, not so plentiful, or
hard to get.
- This index can be an useful indicator in real estate
market. How!!
- Historically this index has correlated well with the
unemployment rate .
- The Consumer confidence index does seem to have a
strong negative correlation with unemployment Rate
data . How!!
- It is a subjective survey, so results may contradict
other indicators such as GDP and labor market. How!!
II. Housing & Construction
 Housing Starts & Building Permits:
- Housing Starts data show the total number of
construction private housing that have begun during
the month.
- Building Permits data show number housing permits
issued.
-However, because the housing sector does tend to
lead the rest of the economy, the series on permits is
one of the ten components of the conference board’s
index of leading indicators ( strong economy tends to
have massive new homes purchases)
 New Housing Sales:
- This indicator is based on the new home sales
survey.
- These data show sales of newly private housing units
constructed.
-New housing sales can be a good indicator of the
housing sector’s performance especially on the
consumer spending side at the economy. HOW!!
- Think of the relationship between this indicator and
the currency.
 Existing Housing Sales Index:
- This indicator is based on the existing home sales
survey.
- These data show sales of existing private housing
units.
-It can be a good indicator of the housing sector’s
activity as it can influence the consumer spending in
the economy.
- Think of the relationship between this indicator and
the currency.
III. Foreign Trade & International Capital Flows
 International Trade Balance:
- These data track exports ( goods & services),
imports ( goods & services), and the balance between
them in dollar value.
- Data for merchandise exports & imports are broken
down into six broad classification :
(1-food and beverages; 2-industrial supplies and
materials; 3-capital goods excluding autos; 4- auto
vehicles, parts, and engines; 5- nonfood consumer
goods except auto; and other merchandise), (major
services)
- The data include figures on bilateral trade with most
countries and regions of the world .
- Monthly exports and imports figures are volatile and
therefore should be evaluated using moving average .
Exports of aircraft and imports of petroleum products
are especially volatile.
- Deviations in the trade figures from expectations can
promote significant changes to the estimations of
GDP growth.
- The data for trade ( exports or imports) as well as
their expectations can affect the currency (exchange
rate). HOW!!
- The data for trade ( exports or imports) as well as
their expectations can affect the stock exchange
market. HOW!!
- How trade balance affects the economy?
 Current Account Balance:
- The current account balance is the most
comprehensive measure of international trade and
financial flows.
- Current account balance is the sum of balances in:
1- Goods & Services trade Account;
(adjusted to exclude military shipments)
2- Income Investment Account;
( current income received & paid on international investment )
3- Unilateral transfers Account
(Including 1-General government, 2- Workers remittances) ; ((note that it is
adjusted to exclude military grants))
- What if the current account is in deficit?
- What if the current account is in surplus?
- If the current account deficit goes up, then capital
inflows into the country also go up. HOW !!