Economic Data That Influence the Stock Market

In this post, I explain some of the commonly used economic indicators that can influence the general direction of the market. If you are new to investing, these indicators will enhance your knowledge and affect your investments. So the next time you hear these terms in the media or financial press, you can use the information in this article to evaluate their potential effect on the economy and ultimately your trading strategy.

Beige Book

Formally called as "Summary of Commentary on Current Economic Conditions" is published eight times a year less than 2 weeks prior to the FOMC meeting on Wednesdays at 2:00 pm ET. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from banks and branch directors and interviews with key businessmen, economists, and other sources. The Fed uses this report, along with other indicators, to determine interest rate policy at FOMC meetings.

If the Beige Book indicates inflationary pressure, the Fed may raise interest rates. Conversely, if it indicates recessionary conditions, the Fed may lower interest rates.

Source: Website listed below in the resource section.

Chicago Purchasing Managers Index (PMI)

Released on the last business day of the month at 10:00am ET. It's based on surveys of more than 200 purchasing managers regarding the manufacturing industry in the Chicago area whose distribution of manufacturing firms mirrors the national distribution.

Readings above 50 percent indicate an expanding factory sector, while below 50 indicates contraction.

Consumer Confidence Index

Published on last Tuesday of the month at 10:00 am ET for prior month data. It's a survey of about 5000 consumers about their attitudes concerning the present situation and expectations regarding economic conditions conducted.

This report can be helpful in determining the shifts in consumption patterns and giving us insights about the direction of the economy. This data can be revised monthly based on a more complete survey.

Consumer Price Index (CPI)

Released around 13th of the month at 8:30am ET for prior month. It measures the change in price of a representative basket of goods and services such as food, energy, housing, clothing, transportation, medical care, entertainment and education. Also known as the cost-of-living index.

The variance of CPI called "core CPI" which excludes food and energy prices is primarily used to gauge the underlying inflation trend. Inflationary pressure is generated when the core CPI posts larger-than-expected gains.

Source: Website listed below in the resource section.

Producer Price Index (PPI)

Released around 11th of each month at 8:30am ET for prior month data. The PPI measures the average price of a fixed basket of capital and consumer goods at the wholesale level.

Similar to CPI, there is a variance of PPI, called as "core PPI" which excludes the prices for food and energy to give a clearer picture of the underlying inflation trend. Inflationary pressure is generated when the core PPI posts larger-than-expected gains.

Source: Website listed below in the resource section.

Durable Goods Orders

Officially called as "Advance Report on Durable Goods Manufacturers' Shipments and Orders", released around 26th of the month at 8:30am ET.

This is government index that measures the dollar volume of orders, shipments and unfilled orders of durable goods. Durable goods are new or used items with normal life expectancy of 3 years or more.

This report gives information on the strength of demand for US manufactured durable goods in domestic and international markets. When the index is increasing, it indicates demand is growing, which will result in rising production and employment.

Employment Situation

Published on 1st Friday of the month at 8:30am ET for prior month data. This report lists the number of payroll jobs at all non-farm businesses and government agencies. The unemployment rate, average hourly and weekly earnings, and the length of the average workweek are also listed in this report. This report is the single most closely watched economic statistic as an indicator of economic activity. Therefore, it plays a big role in influencing the market psychology during the month.

Its obvious from the report that the greater the increase in employment, the faster the total economic growth. An increasing unemployment rate is associated with a contracting economy.

If the average earnings are rising sharply, it may be an indication of potential inflation.

Source: Website listed below in the resource section.

Existing Home Sales

Published on the 25th of the month at 10:00am ET for prior month data. This report measures the selling rate of pre-owned houses. Its considered a decent indicator of activity in the housing sector.

This provides a gauge of not only the demand for housing, but the economic momentum. The data is revised monthly for the preceding month. There can be annual revisions for the preceding 3 years.

Gross Domestic Product (GDP)

Released in 4th week of the month at 8:30am ET for prior quarter, with subsequent revisions released in the 2nd and 3rd month of the quarter. GDP measures the dollar value of all goods and services produced within the borders of the United States.

This is the most comprehensive measure of the performance of the US economy. A higher GDP growth leads to accelerating inflation, while the lower growth indicates a weak economy.

Source: Website listed below in the resource section.

Housing Starts and Building Permits

Released around 16th of the month at 8:30am ET for prior month data. It's a measure of the number of residential units on which construction has begun.

It can be helpful to predict the changes in GDP. While residential investments represents just 4% of the level of GDP, due to its volatility it frequently represents a much higher portion of changes in GDP over relatively short periods of time.

Initial Claims

Published on Thursday at 8:30am for week ended prior Saturday. It's a government index that tracks the number of people filing first-time claims for state unemployment insurance.

Investors use this indicator's 4-week moving average to predict trends in the labor market. A move of 30000 or more in claims shows a substantial change in job growth. The lower the number of claims, the stronger the job market and vice-versa.

ISM Manufacturing Index

Released on the 1st business day of the month at 10:00am ET for prior month data. It's based on surveys of 300 purchasing managers nationwide representing 20 industries regarding manufacturing activities. It covers data such as new orders, production, employment, inventories, delivery times, prices, export orders and import orders.

It's considered to be a major economic indicator of all manufacturing indices. Readings of 50% or above are typically associated with and expanding manufacturing sector and healthy economy, while below 50 are indications of contraction.

ISM Services Index

Also known as Non-Manufacturing ISM is published on 3rd business day of the month at 10:00am ET for prior month data. This index is based on a survey of about 370 purchasing executives in industries including finance, insurance, real-estate, communications and utilities. It reports on business activity in the service sector.

Readings above 50% indicate expansion in the service sector of the economy. While below 50% indicate contraction.

Retail Sales

Published around 12th of the month at 8:30am ET for the prior month data. This index measures the total sales of goods by all retail establishments in the US. These figures are in current dollars, that is, they are not adjusted for inflation. However, that data are adjusted for seasonal, holiday -differences between the months of the year.

This is considered the most timely indicator of broad consumer spending patterns. It gives a sense of the trends among different types of retailers.

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The Hillary Clinton Stock Market and Economy - Three Areas to Consider

I would like to remind the reader of the last time in our country's history when taxes, unemployment, and inflation were extraordinarily high: the late 1970's during the Carter presidency. Inflation was raging and interest rates were in double digits. Many consumers in our economy today do not have vivid memories of that time.

Yet after the 1970's inflationary spiral was broken, at the expense of a severe recession with extremely high unemployment - we have since enjoyed over twenty years of a fundamentally good stock market and economy.

But what if today's relatively good stock market and jobs creating economy were to change? I must admit, I am of the opinion that the winds of inflation may be building a momentum again after all these years of disinflation. I agree with Alan Greenspan's opinion in a CNBC interview that we no longer have the luxury of implementing easy monetary policy, as we did after the technology and stock price bubble deflated after 2000, when deflation was actually a threat.

We have an important election in 2008 that may determine the course of the stock market and the economy in a manner not seen since the late 1970's. Hillary Clinton is the current favorite to win the Democratic nomination - and she is running a liberal, progressive campaign. The Democratic nominee, whoever he or she may be, may win the White House.

There are three areas to consider with respect to why the stock market could decline into a bear market should the economically liberal platform be enacted.

The first proposal of the Clinton campaign that would be anathema to the stock market is the planned redistribution of wealth. Giuliani, in a CNBC interview, actually called this plan an entitlement program for the middle class. This would be in the form of a tax-the-rich-and-give-the-funds-to-the-middle-class policy. This sounds good in theory, but this action would not create a penny of additional wealth or a single new job in our country. The policy simply takes away from one group to give to another more favored group of people. Such a policy could even lower the amount of wealth in our country, as those businesses that are creating jobs might make less money - especially small businesses that may have to lay off workers because their taxes are higher. The economy, and consequently the stock market, could suffer.

To give an example in industry of a possible redistribution policy, an obvious target of the Clinton campaign has been the almost universally hated oil and gas industry, which the Senator believes makes too much money. In fact, I saw an excerpt of a Clinton speech on TV that the senator wanted to "take that money" and I suppose give it to a more favored group of people or industry. This action would amount to an expropriation of assets and would reduce employment in the oil industry. The stock market could react badly to that.

I would like to point out that there have been times in the history of the oil and gas industry during which these companies have been in a depression - but they were not bailed out. But even such a hated industry as the oil and gas industry is capable of creative movement. Fortune magazine reports that Royal Dutch Petroleum has been investing heavily for years in scientific research to produce oil from shale in America. Fortune reports that there is a potential production of 300,000 barrels a day - and it would be profitable at $30 per barrel. They further report that Royal Dutch's technology is supposed to be way ahead of their competitors, with the company holding some 200 patents.

Royal Dutch seems to think those years of heavy investment in research and development will pay off in the near-term horizon. They would also plan to build the first new refinery in the U.S. in decades. Heavy taxes on this industry could discourage new investments such as the Royal Dutch project. The end result would be more energy dependence.

The second idea of the Clinton campaign that would hurt the stock market and the economy is the re-regulation and regulation for the first time of major industries in our economy. If an unfettered industry is seen as making too much money, then it might be a target for being regulated, which inherently makes the industry less creative, vibrant, profitable and flexible (with concurrent less ability to withstand economic shocks and adapt to changing economic conditions).

Alan Greenspan, in a speech reported on CNBC, attributed the flexibility of our economy as one reason why we have not had such deep recessions in recent years. While one sector of the economy is under water, other sectors can pick up the slack and prevent a recession from becoming damaging. But, if employees are tied by regulation to industries that are no longer competitive, then the overall economy would be hurt - those workers would not be retrained for the emerging new industries of the future. The economy would be more rigid by definition and we might experience a declining standard of living as older regulated industries would not make it in the global economy and become obsolete. Like it or not, our capitalist economy works best as a self-correcting mechanism, with new industries supplanting the old.

An industry which could suffer a decline in employment and innovation because of regulation is also a target for criticism: the drug and medical devices companies. We all remember Senator Clinton's early 1990's health care plan, crafted behind the scenes, which really would have been "government run healthcare." The Senator never apologized for that failed attempt at healthcare nationalization, but even now blames her former opposition. The healthcare sector in the stock market at that time fell out of bed while the Clinton plan was being propagated. If nationalized medicine were to become a threat again, that poor action in the stock market could be repeated. So far, the Senator's "American Health Choices Plan," as smoothly explained on the Clinton campaign website, seems on the surface pretty innocuous. But it also would be extremely expensive, perhaps tempting Clinton (if she were elected) to revive her previous ill-considered plan.

I believe that there must be a way to insure the uninsured for hospital stays, doctor visits, pharmaceuticals, etc. without uprooting the entire system. I think one question that is not being discussed is whether a Clinton administration would propose to control drug prices. We have had experience with price controls under President Nixon, and it just produced shortages of goods. There could be shortages of essential medicines if price controls on drugs make it less profitable to invest in the research it takes to develop and produce them. A less profitable atmosphere for the drug industry means fewer drug companies and fewer drugs being invented. Why should entrepreneurs launch new drug companies pioneering new science when their prices are to be controlled and profits regulated?

The fact is that the pharmaceutical industry is not the problem - they are the solution. A pharmaceutical company might spend one billion dollars and two decades developing an important drug that can save lives and keep people from costly stays in the hospital. If artificial controls are placed on the drug's price, then it actually may not be profitable for the company to develop new drugs in the future. They could fire researchers and other employees to cut costs. Since over 90% of all new pharmaceuticals are developed in the US, health care costs would likely go up as new cost saving cures would not be developed.

Drug companies have invented life saving medicines that have kept tens of millions of people out of costly hospital stays, and saved and extended many lives. I believe these drugs are an extremely cost-effective solution to illness and disease - and I do believe all private insurance should cover prescription drugs liberally.

The third area of a possible Clinton presidency about which one must be concerned if you are a stock market investor or simply a taxpayer, is free trade. An open trade system has allowed our country to prosper in the last two decades. Granted, currency manipulation on the part of a trading partner (such as China) is not free trade - but most of our trading partners and the newly emerging eastern European economies are adopting lower taxes and free market policies. It is a shame that the liberal wing of the Democratic Party has not received that message and is indicating a path for this country that may bring our economy and our stock market back to the past economic policies of the 1970's.

The outcome of the 2008 presidential election will do much to determine the outlook for the economy and the stock market in the next several years. Regardless of who wins, the second year of the presidential term is usually poor for the stock market, as the policy makers make the economy take its medicine early on in the term.

The Federal Reserve, in its current easing mode, should encourage the stock market until the months before the election, when it will be clearer who the victor will be. At that time, the stock market's future direction will be determined by the degree of wisdom of the victor's economic policies, and, of course, Federal Reserve policy.

I was first exposed to financial markets when I started reading the stock quotes out of the newspaper to my businessman grandfather, who was legally blind, when I was about ten. I remember Papa always told me: "Buy Triple A" (the best stocks). Later, I studied economics at both Vassar College and Columbia University, where I became intrigued by the link between psychology and economic theory. My current e-book, A Way to Wealth - the Art of Investing in Common Stocks, is available at my website, http://www.ReiznersWay.com.

This article contains the opinions and ideas of its author and is designed to provide useful information to the reader on the subject matter covered. The author may or may not have current positions in the investments mentioned in this work, and the author may from time to time make investments in a manner that is not described here. Past performance is no guarantee or prediction of future results and any investments made, based on the opinions and ideas contained in this work, may or may not be successful. The strategies contained herein may not be suitable for every situation, and the author is not engaged in rendering legal, accounting, investment advisory or other professional services.

World's Uranium Companies Heading to U.S. Stock Exchanges

Three years ago, one could only find Cameco Corp (CCJ) trading on the New York Stock exchange. As of late November 2006, Energy Metals Corp (EMU) began trading on the NYSE ARCA. Energy Metals is currently developing their Texas uranium in situ recovery mine for production in either late 2007 or early 2008.

One tier down on the American Stock Exchange is the Fronteer Group (FRG), which is a hybrid gold company holding uranium-mineralized assets. A recent entry to the American exchange is first pure-play uranium company to trade on this exchange: Uranerz Energy (URZ). Uranerz is now the second publicly traded company, after Cameco Corp, in which investors can also trade stock options. The announcement was made at the end of January.

After those, there are a number of different companies with some prospects better than others. However, before reviewing those, let's look at what could well become the world's second largest uranium company, by market capitalization, after Cameco Corp. On early Monday morning, Canada's Globe and Mail newspaper published a report that Johannesburg- and Toronto-listed SXR Uranium One (TSX: SXR) planned to acquire TSX- and AIM-listed UrAsia Energy (TSX: UUU) for approximately $3 billion. In what has been announced as a friendly take-over, SXR Uranium One plans to issue some $3.1 billion in stock to buy UrAsia. Before the announcement, SXR was valued at less than CDN$2 billion.

In previous interviews with SXR Uranium One chief executive Neal Froneman, he has repeatedly told us he wishes to list on a U.S. stock exchange. If and when the acquisition closes - it was announced that it should by mid May of this year - the new Uranium One would hold uranium properties on four continents: Africa, Australia, Asia and North America. SXR's Dominion uranium mine should begin producing this March. UrAsia Energy is currently producing in Kazakhstan. SXR's Australian 'Honeymoon' in situ leach uranium operation is scheduled to start producing in early 2008.

According to Canada's national newspaper, the combined companies have the potential to annually produce some 19 million pounds by 2012. That's about what Cameco Corp's Cigar Lake was expected to produce before the mine flooded this past October. Since then, Cameco has delayed in announcing when the company believes its uranium mine will actually be in shape to produce uranium.

Based upon our conversations with Neal Froneman, and in light of this new business combination creating the world's second largest uranium mining company, it shouldn't be too far into the future when Uranium One announces it plans to list on the New York Stock Exchange. The headline of their February 12th news release announced, "Uranium One and UrAsia Energy Announce Combination to Create Emerging Senior Uranium Company." Aside from Cameco Corp, there really is no other senior pure play uranium company.

As for the rest of the companies now trading on the over the counter bulletin board, we have reviewed two which offer hope to investors. Uranium Energy (OTC BB: URME) plans to mine uranium using the in situ recovery (ISR) method. Chief operating officer Harry Anthony appears to be one of the boys in the ISR club with decades of experience behind him. He lives and works in south Texas.

After extensive interviews with Mr. Anthony - which we used in our publication "Investing in the Great Uranium Bull Market" in explaining the ISR method of mining - it became evident to us that if Anthony couldn't get an ISR operation functioning in Texas, that no one else on the planet was likely to do so. From what we understand, Uranium Energy could be producing uranium by 2009 on its Goliad property.

Another newcomer seems to be doing very well, Yellowcake Mining (OTCBB: YCKM). While it appears to be a 'new company,' the company's property is not. Yellowcake Mining acquired the Juniper Ridge (Wyoming) property from powerhouse Strathmore Minerals (TSX: STM; OTC: STHJF) on January 30th. Previous drilling through 1979 outlined up to 15 million pounds of uranium. Plans were made in that year to build a 2000-ton/day mill. But, that was the year when uranium demand fell off, and the mill was never built. With the uranium price continuing to head higher, Yellowcake Mining stands to benefit from uranium-friendly Wyoming and some of Strathmore Mineral's expertise in the form of David Miller.

There are two other major uranium companies, both with market capitalizations in excess of C$1 billion: Denison Mines (TSX: DML) and Paladin Resources (TSX: PDN). Both are producing uranium companies and highly respected in many circles for their separate achievements. The business combination of International Uranium Corporation and Denison Mines has gone smoothly so far. Dissatisfied with producing in just Namibia, Paladin now hopes to mine uranium elsewhere in Africa and possibly in Australia. Both foreign companies could be candidates for future U.S. stock exchange listings.

In 2006, uranium prices nearly doubled. While 2007 has seen uranium slowly creep higher - now at US$75/pound, many analysts believe uranium could trade above US$100/pound before this year ends. If that's the case, then we might expect a number of uranium companies pursuing a listing on either the New York or American stock exchanges over the next few years.

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED

James Finch contributes to StockInterview.com and other publications. His focus on the uranium mining and nuclear fuel sector resulted in the widely popular “Investing in the Great Uranium Bull Market,” which is now available on [http://www.stockinterview.com] and on http://www.amazon.com