Prelims

doi:10.1108/978-1-80455-324-420231015

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Using Economic Indicators in Analysing Financial Markets

Author and Other Information

Bernd Krampen

Norddeutsche Landesbank Girozentrale, Germany

Emerald Publishing Limited

DOI:

https://doi.org/10.1108/9781804553244

ISBN electronic:

978-1-80455-324-4

ISBN print:

978-1-80455-325-1

Publication date:

2023

Book Chapter

Prelims

Author and Other Information

2023

Doi:

https://doi.org/10.1108/978-1-80455-324-420231015

Published:

2023

2023

Half Title Page

Using Economic Indicators in Analysing Financial Markets

Title Page

Using Economic Indicators in Analysing Financial Markets

Bernd Krampen

United Kingdom – North America – Japan – India – Malaysia – China

Copyright Page

Emerald Publishing Limited

Howard House, Wagon Lane, Bingley BD16 1WA, UK

First edition 2023

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List of Figures

Part I

Chapter 2

Figure 1.

Use of Different Signals by Type of Analysis Depending on the Time Horizon.

Figure 2.

Overview of Interactions in Economic Activity, Market Developments and Government Influence.

Figure 3.

Leading Indicators and Lagging Indicators.

Figure 4.

Economic Indicators Worldwide Most Sensitive to Stocks, Bonds, Currencies in the Monthly Schedule.

Part II

Chapter 3

Figure 5.

USA: GDP Growth and Leading Indicators.

Figure 6.

ISM^® PMI vs. Philadelphia Fed and NY Empire State.

Figure 7.

Non-farm Payrolls vs. Unemployment Rate.

Figure 8.

Durables and Aircraft Order Intake at Boeing.

Chapter 4

Figure 9.

China: GDP Growth and Leading Indicators.

Figure 10.

Japan: GDP Growth and Leading Indicators.

Chapter 5

Figure 11.

Germany: GDP Growth and Leading Indicators.

Figure 12.

Ifo Business Expectations and ZEW Economic Expectations.

Figure 13.

Ifo Business Assessment and ZEW Economic Situation.

Part III

Chapter 6

Figure 14.

USA: GDP Growth Contribution Consumption and GDP Growth.

Figure 15.

USA: GDP Growth Contribution Consumption and Explanatory Time Series.

Figure 16.

USA: GDP Growth Contribution Structures and Explanatory Time Series.

Figure 17.

USA: GDP Growth Contribution Equipment and Software and Explanatory Time Series.

Figure 18.

USA: GDP Growth Contribution Residential Investment and Explanatory Time Series.

Figure 19.

USA: BIP GDP Growth Contribution Inventories and Explanatory Time Series.

Figure 20.

USA: GDP Growth Contribution Net Exports and Explanatory Time Series.

Chapter 7

Figure 21.

GDP Growth and New York Empire State Survey (3 Months Ahead).

Figure 22.

GDP Growth and Philadelphia Fed (3 Months Ahead).

Figure 23.

GDP Growth and ISM^® Services PMI (3 Months Ahead).

Figure 24.

GDP Growth and ISM^® PMI (5 Months Ahead).

Figure 25.

GDP Growth and Personal Spending (3 Months Ahead).

Figure 26.

GDP Growth and Rail Freight Transport (3 Months Ahead).

Figure 27.

GDP Growth and Building Permits (4 Months Ahead).

Figure 28.

GDP Growth and Aruoba Diebold Scotty Index (4 Months Ahead).

Figure 29.

GDP Growth and Money Supply M1 (7 Months Ahead).

Figure 30.

GDP Growth and Stock Market (6 Months Ahead).

Figure 31.

GDP Growth and Real Interest Rate (9 Months Ahead).

Figure 32.

GDP Growth and Yield Curve (18 Months Ahead).

Figure 33.

GDP Growth and Oil WTI.

Figure 34.

GDP Growth and Gold and Silver.

Figure 35.

GDP Growth and Copper and Aluminium (2 months ahead).

Figure 36.

CPI Food versus PPI Crude Food and S&P GSCI Agriculture Index^®.

Figure 37.

CPI Energy versus Oil Price WTI and Gasoline Price.

Figure 38.

CPI Housing and CPU Shelter versus Housing Prices.

Figure 39.

CPI Used Car & Trucks versus Mannheim Auctions Used Car Value Index.

Figure 40.

CPI Clothing versus Cotton Price.

Figure 41.

CPI Core Versus NFIB ‘Higher Prices’.

Figure 42.

CPI Core Versus Wage Growth (Hourly Earnings and Personal Income Compensation).

Chapter 8

Figure 43.

Possible Causes for Recessions.

Figure 44.

Recessions and Yield Curve (10Y–2Y).

Figure 45.

Recessions and ISM^® PMI.

Figure 46.

Recessions and Unemployment Rate.

Figure 47.

Recessions and the Change in the Unemployment Rate.

Figure 48.

Recessions and Conference Board^® Consumer Confidence^®.

Figure 49.

Recessions and Personal Spending.

Figure 50.

Recessions and Duncan Leading Indicator.

Figure 51.

Recessions and the Stock Market S&P 500^®.

Part IV

Chapter 9

Figure 52.

NAHB and University of Michigan Buying Conditions for Houses (BCH).

Figure 53.

NAHB and Real Estate Prices.

Figure 54.

NAHB and Building Permits, Housing Starts.

Chapter 10

Figure 55.

Multiple Interdependencies in the Financial Markets.

Figure 56.

Main Topics of Behavioural Finance.

Figure 57.

Different Assessment of Risk in the Loss Area and in the Profit Area.

Part I
Chapter 2
Figure 1.	Use of Different Signals by Type of Analysis Depending on the Time Horizon.
Figure 2.	Overview of Interactions in Economic Activity, Market Developments and Government Influence.
Figure 3.	Leading Indicators and Lagging Indicators.
Figure 4.	Economic Indicators Worldwide Most Sensitive to Stocks, Bonds, Currencies in the Monthly Schedule.
Part II
Chapter 3
Figure 5.	USA: GDP Growth and Leading Indicators.
Figure 6.	ISM^® PMI vs. Philadelphia Fed and NY Empire State.
Figure 7.	Non-farm Payrolls vs. Unemployment Rate.
Figure 8.	Durables and Aircraft Order Intake at Boeing.
Chapter 4
Figure 9.	China: GDP Growth and Leading Indicators.
Figure 10.	Japan: GDP Growth and Leading Indicators.
Chapter 5
Figure 11.	Germany: GDP Growth and Leading Indicators.
Figure 12.	Ifo Business Expectations and ZEW Economic Expectations.
Figure 13.	Ifo Business Assessment and ZEW Economic Situation.
Part III
Chapter 6
Figure 14.	USA: GDP Growth Contribution Consumption and GDP Growth.
Figure 15.	USA: GDP Growth Contribution Consumption and Explanatory Time Series.
Figure 16.	USA: GDP Growth Contribution Structures and Explanatory Time Series.
Figure 17.	USA: GDP Growth Contribution Equipment and Software and Explanatory Time Series.
Figure 18.	USA: GDP Growth Contribution Residential Investment and Explanatory Time Series.
Figure 19.	USA: BIP GDP Growth Contribution Inventories and Explanatory Time Series.
Figure 20.	USA: GDP Growth Contribution Net Exports and Explanatory Time Series.
Chapter 7
Figure 21.	GDP Growth and New York Empire State Survey (3 Months Ahead).
Figure 22.	GDP Growth and Philadelphia Fed (3 Months Ahead).
Figure 23.	GDP Growth and ISM^® Services PMI (3 Months Ahead).
Figure 24.	GDP Growth and ISM^® PMI (5 Months Ahead).
Figure 25.	GDP Growth and Personal Spending (3 Months Ahead).
Figure 26.	GDP Growth and Rail Freight Transport (3 Months Ahead).
Figure 27.	GDP Growth and Building Permits (4 Months Ahead).
Figure 28.	GDP Growth and Aruoba Diebold Scotty Index (4 Months Ahead).
Figure 29.	GDP Growth and Money Supply M1 (7 Months Ahead).
Figure 30.	GDP Growth and Stock Market (6 Months Ahead).
Figure 31.	GDP Growth and Real Interest Rate (9 Months Ahead).
Figure 32.	GDP Growth and Yield Curve (18 Months Ahead).
Figure 33.	GDP Growth and Oil WTI.
Figure 34.	GDP Growth and Gold and Silver.
Figure 35.	GDP Growth and Copper and Aluminium (2 months ahead).
Figure 36.	CPI Food versus PPI Crude Food and S&P GSCI Agriculture Index^®.
Figure 37.	CPI Energy versus Oil Price WTI and Gasoline Price.
Figure 38.	CPI Housing and CPU Shelter versus Housing Prices.
Figure 39.	CPI Used Car & Trucks versus Mannheim Auctions Used Car Value Index.
Figure 40.	CPI Clothing versus Cotton Price.
Figure 41.	CPI Core Versus NFIB ‘Higher Prices’.
Figure 42.	CPI Core Versus Wage Growth (Hourly Earnings and Personal Income Compensation).
Chapter 8
Figure 43.	Possible Causes for Recessions.
Figure 44.	Recessions and Yield Curve (10Y–2Y).
Figure 45.	Recessions and ISM^® PMI.
Figure 46.	Recessions and Unemployment Rate.
Figure 47.	Recessions and the Change in the Unemployment Rate.
Figure 48.	Recessions and Conference Board^® Consumer Confidence^®.
Figure 49.	Recessions and Personal Spending.
Figure 50.	Recessions and Duncan Leading Indicator.
Figure 51.	Recessions and the Stock Market S&P 500^®.
Part IV
Chapter 9
Figure 52.	NAHB and University of Michigan Buying Conditions for Houses (BCH).
Figure 53.	NAHB and Real Estate Prices.
Figure 54.	NAHB and Building Permits, Housing Starts.
Chapter 10
Figure 55.	Multiple Interdependencies in the Financial Markets.
Figure 56.	Main Topics of Behavioural Finance.
Figure 57.	Different Assessment of Risk in the Loss Area and in the Profit Area.

List of Tables

Part I

Chapter 2

Table 1.

Criteria for the Relevance of Business Cycle Indicators in the Financial Markets.

Part II

Chapter 3

Table 2.

Overview of US Economic Data by Segment.

Table 3.

Monthly Schedule of US Economic Data Releases.

Table 4.

Daily Schedule of US Economic Data Releases.

Table 5.

US GDP Growth Release Dates.

Chapter 4

Table 6.

Monthly Schedule of Other Economic Data Releases.

Table 7.

Daily Schedule of Other Economic Data Releases.

Part III

Chapter 6

Table 8.

Overview of Relevant Indicators for GDP Growth Contributions.

Chapter 7

Table 9.

Overview of Leading Indicators for Economic Activity (GDP Growth).

Table 10.

Overview of Leading Indicators for CPI Components (Inflation).

Chapter 8

Table 11.

Selection of Indicators for a Possible Upcoming Recession.

Part IV

Chapter 10

Table 12.

Growth and Disintegration of (Opinion) Parties.

List of Market Relevant Economic Indicators

			Page
USA		GDP growth	23
	National Business Surveys	ISM^® PMI	29
		ISM^® Services PMI	34
		IHS Markit^® PMI	37
		NFIB Small Business Optimism	40
	Regional Business Surveys	Philadelphia Fed	43
		NY Empire Survey	47
		MNI Chicago Business Barometer	49
	Labour Market	Non-farm payrolls	53
		Unemployment rate	57
		Average hourly earnings	61
		Average weekly hours	64
		Initial claims	65
		Job openings	68
		ADP employment	70
	Manufacturing	Industrial production	72
		Capacity utilisation	76
		Durable goods orders	78
	Private Consumption	Retail sales	83
		Personal spending	87
		Personal income	89
	Consumer Surveys	University of Michigan consumer confidence	92
	Consumer Surveys	Conference Board^® Consumer Confidence^®	95
	Real Estate Market	NAHB Index	99
		Building permits	102
		Housing starts	104
	Other Macro Data	Trade balance of goods and services	106
	Prices	Consumer prices (CPI)	109
		Producer prices (PPI)	113
		Import Prices	115
		PCE price deflator	116
		GDP price deflator	118
China		GDP growth	124
		CFLP PMI	127
		Caixin PMI	130
Japan		GDP growth	134
Japan		Tankan business conditions	135
Germany		GDP growth	139
		ifo Index	142
		ZEW survey	149
		Sentix^® economic indices	152
Belgium		Business conditions	155
Euroland		Economic sentiment	156

			Page
USA		GDP growth	23
	National Business Surveys	ISM^® PMI	29
		ISM^® Services PMI	34
		IHS Markit^® PMI	37
		NFIB Small Business Optimism	40
	Regional Business Surveys	Philadelphia Fed	43
		NY Empire Survey	47
		MNI Chicago Business Barometer	49
	Labour Market	Non-farm payrolls	53
		Unemployment rate	57
		Average hourly earnings	61
		Average weekly hours	64
		Initial claims	65
		Job openings	68
		ADP employment	70
	Manufacturing	Industrial production	72
		Capacity utilisation	76
		Durable goods orders	78
	Private Consumption	Retail sales	83
		Personal spending	87
		Personal income	89
	Consumer Surveys	University of Michigan consumer confidence	92
	Consumer Surveys	Conference Board^® Consumer Confidence^®	95
	Real Estate Market	NAHB Index	99
		Building permits	102
		Housing starts	104
	Other Macro Data	Trade balance of goods and services	106
	Prices	Consumer prices (CPI)	109
		Producer prices (PPI)	113
		Import Prices	115
		PCE price deflator	116
		GDP price deflator	118
China		GDP growth	124
		CFLP PMI	127
		Caixin PMI	130
Japan		GDP growth	134
Japan		Tankan business conditions	135
Germany		GDP growth	139
		ifo Index	142
		ZEW survey	149
		Sentix^® economic indices	152
Belgium		Business conditions	155
Euroland		Economic sentiment	156

About the Author

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Bernd Krampen has studied economics at the universities of Kiel (Germany) and Swansea (United Kingdom). Since 1997 he has worked as financial analyst and economist for Norddeutsche Landesbank in Hanover (Germany). He is responsible for assessing and forecasting economic activity, inflation, interest rates and exchange rates for various countries. His focus lies on fundamental economic analysis, but he also examines behavioural aspects. He also has gained some relevant experience teaching financial economics in educational institutions (e.g. Sparkassenakademie Niedersachsen). His publications include contributions to peer-reviewed journals such as the German Journal of Risk and Insurance. He lives in Barsinghausen near Hanover with his wife Sandra and their daughters Alessia and Noelia.

Preface

Research is formalized curiosity. It is poking and prying with a purpose.
(Zora Neale Hurston)

Imagination is the highest form of research.
(Albert Einstein)

Where are the economy and the financial markets heading? What is the outlook for growth, and what are the growth drivers? What does this mean for the expected trends on the financial markets? These questions, which at first glance seem rather academic, can mean hard cash – with the right investments on the financial markets. After all, economic developments have a significant influence on financial market variables such as interest rates, exchange rates and shares. Correct positioning on the financial markets can actually generate profits for one's own investments when macroeconomic trends materialise. In this respect, the question of the economy is not merely an academic-sporting exercise, but creates advantages for one's own wallet.

More than 2 ½ decades of working as an economist in a bank have provided a wealth of experience on how capital markets work and how they can react to new news. Which moods of people, impulses from politics and other (unexpected) influences cause which market movements? Such a wealth of experience is accumulated quasi incidentally over time. Theories and models learned at University have to be compared with experienced reality again and again and can then be considered useful or less useful. Obviously, some of the experiences and insights gained are of interest and of added value.

The main point of this book is to recognise that business cycle analysis is firstly complex, secondly affected by many interdependencies, and thirdly that a forecast of future development should not be overrated. For although there are a large number of indicators that show good tendencies, one problem of analysis is that they often go in different directions. This also explains the differing opinions of economists and analysts when it comes to the future. The weighing of the different indicators is decisive. Unfortunately, however, there is not even agreement on the effects and developments either to the present or the past. One of the intentions of this book is to make readers pause, question, reflect and look critically at many things when connections are all too clear. Things are not always as they – simplistically – appear. Business cycle analysis and economics are not sciences, but applied theories that are supposed to describe the summed actions of many people as a result.

The first step in the analysis to assess the economic development and the implications for the financial markets should be to correctly evaluate the new news flying in every day. It is important to be able to classify the publications of economic data. What do the indicators contain, which are relevant to the market, how to forecast them? Part II deals with the most market-relevant indicators from the major regions.

Analysts want to get an assessment for the coming months to several years. The tools that can be used for this are discussed in Part III. Basically, the aim is to identify the trends for GDP growth and inflation in the next quarters with the help of the economic data available on a monthly basis. The focus is on growth contributions, leading indicators and forecasting recessions. The good forecast properties of sentiment indicators, the NAHB index as an example for the real estate market and an introduction into psychology in analysing financial markets will be discussed in Part IV.

Prelims

Half Title Page

Title Page

Copyright Page

List of Figures

List of Tables

List of Market Relevant Economic Indicators

About the Author

Preface

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