Employment and unemployment rates are tracked by traders.
Employment and unemployment rates are monitored by traders almost constantly. The employment situation report is one of the leading indicators traders monitor. This report is the first important economic indicator, which is published every month and often forms expectations in connection with the rest of the reports for the relevant month. For example, signs of a weak labor market in the Employment Situation Report are usually a sure sign of a deterioration in retail sales and the possible appearance of other negative reports later in the same month. In addition, the Employment Situation Report contains data broken down by industry. For example, a significant reduction in employment in construction is a sure sign that the report on the construction of new housing will also be negative.
This report may send negative signals to financial markets, especially if the published data differs significantly from expectations. If this report does not meet expectations or employment statistics show signs of weakness, stock prices will certainly crawl down. On the other hand, stock prices can rise sharply if the Employment Situation Report indicates an improvement in the employment situation compared to what was expected. As is usually the case with any shock on the market, price changes are temporary, unless other indicators also show the same trend.
The reason that the Employment Situation Report has such a strong impact on markets is that the information it contains represents an early assessment of the situation in the market as a whole, since this report contains fairly "fresh" data. This report is considered to be the best indicator of unemployment and wage pressure. Increasing unemployment can serve as an early sign of an impending recession, while rising pressure on wages is an early sign of inflation.The employment situation report is also a kind of snapshot of the overall labor market.
The two most important parts of this report that are of particular interest to traders are:
unemployment and new jobs;
average number of hours worked per week and average earnings of employees.
So, you have a huge amount of data at your disposal, but not all of this data concerns the types of stocks you intend to trade. Properly organizing data collection and tracking trends can make it much easier for you to identify economic indicators and determine exactly which stage of the business cycle the markets are at a given moment. The following steps are described, the implementation of which can greatly facilitate the solution of this problem.
1. Follow the publication calendar of key economic indicators of interest to you.
The behavior of the markets may correspond to the forecasts of these economic indicators, therefore, if you know in advance exactly when this or that economic indicator should be published,Be sure to track trends with stock prices in terms of the possible impact that the upcoming publication may have on market behavior.
2. Try to understand which sectors of the economy are most affected by the economic indicators you are monitoring.
For example, GDP clearly predicts the direction of economic development, while PP and CP are reliable indicators of inflation.
3. Try to understand which economic indicators are most important for the market.
For example, in periods of high inflation, economic indicators that incorporate key data related to inflation have the greatest impact on market behavior. If markets are concerned with growth issues, then the components of GDP that are directly related to growth, as well as other indicators, will have the greatest potential impact on markets.
4. Try to understand what exactly the market expects to see in these indicators.
It is not the number itself that matters, but how much the markets expected such a number. Markets are driven by surprises.
5. Try to understand which components of an economic indicator are important to you.
Newspaper headlines may be screaming about shocking economic performance, but the components of the index referred to in these articles may not be so important to the decisions you make. For example, experienced traders are well aware of the high variability of those CPI components that are related to food and energy, so a more important indicator for them is the basic CPI, which does not include food and energy. At the same time, the media can focus only on the most volatile indicator.
6. One should not overreact to one or another of the newly published economic indicators that do not meet market expectations.
After the initial publication, economic indicators are often reviewed and adjusted. Difference xBetween published and expected values may be due not to a transition to a new stage of the business cycle, but only inaccuracy or incompleteness of the input data.
7. Track trends.
Use your calendar to track the most important components of each of the economic indicators of interest to you.Track trends in the most important data components to get the most complete picture of current changes in the business cycle.
Careful monitoring of economic indicators is the best way to determine at what stage the business cycle is at a given stage and at what stage it can go in the near future. Waiting for the official announcement, you can hopelessly "fall behind the train." By the time this official announcement is published, the corresponding stage of the business cycle may be far behind and the markets may be influenced by the next stage of the business cycle.
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