Despite the U.S. national debt, there is a silver lining for income investors. This massive spending, combined with movement out of U.S. Treasuries, is going to take its toll on the dollar, and international income investors could reap the rewards in the form of higher dividends.

Economic Data Releases

Below we bring you a closer look at some key economic items that often have a major impact on the markets. In doing so, we not only provide you with a glimpse at most key economic releases, but we also highlight the items that the pros look at. In addition, we tell you what to watch for as the numbers come out, and introduce you to some important market lingo. Finally, we provide you with a listing of some of the most useful economic data related web sites on the Internet.

Investors should keep a watchful eye on the following economic data items.

THE FEDERAL RESERVE

The Federal Open Market Committee (FOMC), which meets roughly eight times per year, hands down monetary policy decisions for the country. The FOMC consists of the seven Federal Reserve Governors, the President of the Federal Reserve Bank of New York and four other Federal Reserve Bank presidents on a rotating basis. At the conclusion of its meetings, the FOMC issues a statement regarding any interest rate policy actions the committee has decided to make. It also provides the markets with a statement that describes the FOMC’s view of the current state of the U.S. economy, along with its expectations for future economic growth. In addition, this statement typically focuses on the labor market and inflation. After the FOMC statement comes out, analysts carefully dissect each and every word the Fed uses in an effort to read some deep meaning into what the Fed is trying to say.

DATA RELEASED BY THE FEDERAL RESERVE BANKS

The Fed releases many data items that are worth watching closely, including.

— Industrial production and capacity utilization show whether U.S. manufacturers are running into bottlenecks when the economy is expanding vigorously. Capacity utilization levels above roughly 80% are considered risky with regard to an overheating economy, which could lead to high inflation.

— Weekly money supply data show whether the Fed has been trying to put the brakes on the economy or provide liquidity to the economy via its control of bank reserves.

— Balances of foreign central banks at the Treasury will be an indication of possible past foreign currency market interventions and can provide an ex-post explanation for movements in the bond market. For example, if Japan wishes to slow the rise of the yen, then it will sell yen and buy dollars, and then invest those dollars in the U.S. Treasury bond market, increasing U.S. bond prices and lowering their yields.

— The trade-weighted value of the dollar may become important if the U.S. dollar weakens too much, as the Fed could become concerned that a very weak currency would lead to inflation. When the U.S. dollar is weak, it makes foreign goods more costly, which then enables domestic competitors to raise prices.

FED SPEECHES AND TESTIMONY

The Fed Chairman testifies before both houses of Congress twice a year. In it, the Chairman details his or her expectations for the economy, including the labor markets, equity markets, currency markets and inflation. He or she then spends a couple of hours fending off questions from Congressmen and Senators.

The Fed releases the speeches and testimony on its web site at the time the speech is scheduled to start. News organizations see the speech ahead of time and will produce headlines as soon as the Fed lifts the embargo on the text. Speeches and testimony by the Chairman are considered to be the most important, but comments made by other Fed bank presidents and governors can be helpful as well, as they will often attempt to amplify or clarify statements made by the Chairman or other Fed members.

THE BEIGE BOOK

Sometimes called the Tan Book, the Beige Book is the input the Fed uses to help it make its policy decisions. The report is released with a delay, but is important because it describes business conditions in each Federal Reserve district in great detail. The report not only discusses how various sectors in each region are faring, but also whether companies are hiring, running into cost pressures, etc.

FOMC MINUTES

The Fed releases detailed minutes of its FOMC meetings with a substantial delay. The minutes show what the governors discussed and the questions they asked. Along those lines, they show where there may have been disagreements or concurrence regarding their decisions. These minutes can be very helpful in determining the future direction of Fed policy. Usually, the minutes do not move the markets. However, sometimes the text shows either discord or insights into the Fed’s thinking that the market does not expect.

Please remember that the Fed is not the only entity that is important in helping to set policy that impacts the economy. Fiscal policy — how the government spends money and taxes the populace — is set by the Legislative (Congress) and Executive (the President and Vice President) branches. And, of course, state and municipal governments can have an impact on legislative and tax changes relevant to their jurisdictions.

WEEKLY UNEMPLOYMENT CLAIMS

Weekly unemployment claims data indicate the number of new unemployment claims during a given calendar week. Although few, if any, economists would ever consider a weekly statistic as being particularly valid for forecasting the economy or the condition of the labor markets, market participants pay close attention to the change in this variable every week, as well as to the four-week moving average. In analyzing the data, the key thing to look for is a change in the trend itself, or movement above or below critical levels. Recently, for example, the number of jobless claims has fallen below 400,000, after staying stubbornly above that level for a long period of time. A move below 350,000 on a consistent basis would be a further sign of improvement in the labor market. Please note that this report does not show how many people are on the unemployment rolls, and it also does not indicate how many people have run out of unemployment insurance, which only lasts six months.

THE HOUSEHOLD SURVEY

Each month, usually on the first Friday of that month, the Bureau of Labor Statistics releases the National Employment Situation statistics. This is one of the most important bits of economic information available to the markets for two reasons:

(1) It is the first comprehensive set of data available for the prior month.

(2) It shows whether or not there are more jobs in the economy. When the number of jobs increases, the overall economy tends to benefit because there is usually more money to go around. The Household Survey is also important because it can be used to adjust expectations for other statistics, such as industrial production and capacity utilization (more jobs in manufacturing = higher production).

The Household Survey is based on data collected by the Bureau of the Census for the Bureau of Labor Statistics. The data are based on what the Census Bureau believes to be a representative sample of 60,000 households nationwide. The BLS then aggregates the data and computes the national unemployment rate, along with other statistics.

The first number to watch for in this release is the actual unemployment rate. This is calculated as the number of people out of work (and currently seeking employment) divided by the total labor force. People that have determined they cannot get a job, and have given up looking, are not listed as unemployed. Therefore, the true unemployment rate is much higher than the actual figure shown here. The government also releases the number of discouraged workers, which you should track too since large increases can be a sign of a weak labor situation. Though not widely used by economists in their work, the unemployment rate often has a significant impact on the markets.

THE NON-FARM PAYROLLS SURVEY

This data item measures the number of people employed by non-agricultural businesses nationwide, from services, to manufacturing to the government itself. The data can be extremely volatile and are subject to substantial revisions. In fact, sometimes the market focuses more on the revision to prior months’ data than the current data itself. Key numbers to watch in the non-farm payrolls survey include:

• Change in total non-farm payrolls — This is the most important data item each month. As long as you know what the consensus forecast is, this will give you a broad overview of whether the number is a disappointment or a positive surprise.
• Revisions to prior months — If data for the current month is 20,000 better than expected, but the prior two months are revised lower by a total of 50,000, for example, then you might very well see a drop in the stock market.
• Hours worked — Some people say each 0.1 increase in weekly hours worked is equivalent to 100,000 jobs. With this in mind, an increase in hours worked is important.
• Overtime hours worked — Sometimes companies add to overtime hours in an attempt to avoid hiring permanent workers. Overtime hours will often rise as a precursor to new hiring. Similarly, increases in temporary and part-time jobs can also serve as a leading indicator to new permanent jobs.

• Wages — Watch this for signs of inflation. If employers start paying more to workers, then the Fed will definitely take notice!

GROSS DOMESTIC PRODUCT (GDP)

This number is released once each quarter, and then is revised two more times during the quarter. It measures the value of the total output of all manufacturing and services produced in the United States. The number that is reported is called real GDP. The term Real means growth after taking inflation out of the number. In other words, if the value of all products increased 10%, but there was 5% inflation, then real growth would be 10% minus 5%, or 5%. It’s also important to understand that the data are annualized. So if you see a 4% result for a given quarter, then that means real GDP grew approximately 1% when compared with the previous quarter. Analysts look at several numbers in the GDP data. Here are the most important items that can affect the number and make the result misleading:

• The deflators (there are a few) are a measure of inflation. A high deflator slows real growth and can be a sign of inflation.
• Net exports show the difference between what the U.S. imports from other countries and exports to other countries. If we import more than we export (the current situation), then that number is taken out of GDP.
• Change in inventories is very important. Businesses build inventories when they expect to sell a lot of goods. If inventories increase, they add to GDP. If they decrease, it subtracts from GDP.
• Capital expenditures (CAPEX) data measures business spending and investment and is often seen as a key to sustainable growth.

PRICE (INFLATION) DATA

There are two important data series here: The Producer Price Index (PPI) and the Consumer Price Index (CPI). The PPI is essentially a measure of wholesale prices. Meanwhile, the CPI measures prices paid by consumers. Both indices consist of a total index for all goods, plus one that is known as the core index, which excludes food and energy prices (since food and energy prices tend to be very volatile, economists do not consider them to be representative of underlying inflation). Apparently, economists do not require heating in the winter, cooling in the summer, gasoline for their vehicles, or food! However, the rest of us do spend money on such items, and in fact are often more affected by changes to food and energy costs than any other set of products.

The PPI and CPI are shown in a few ways. Both numbers are reported in terms of their percentage change versus the prior month, as well as their change from a year ago. Both items also are reported with sub-indices based on specific product types (such as tobacco, vegetables, beef, consumer electronics, and automobiles). The PPI also is released based on stage of productions (crude, intermediate and finished goods). Some economists believe that higher crude materials prices will ultimately result in higher intermediate and finished goods prices, which will then translate into higher consumer prices.

RETAIL SALES

This government release shows total sales of all items sold by retail outlets. The data are shown as month-to-month changes in two ways: total sales, and sales excluding cars and trucks. The retail sales minus automobiles figure is important to examine because car and truck sales are very large and can hide the underlying trend in other items. Note also that retail sales data are not adjusted for changes in prices. This means if there is a large increase (drop) in the price of gasoline or heating oil, for example, then retail sales may show a misleading gain (fall).

DURABLE GOODS ORDERS

This economic figure represents orders for so-called durable goods — items with expected life spans of at least three years. Sales of such goods are seen as a measure of strength in the manufacturing sector. This report is usually shown in terms of a total number, as well as a figure that excludes defense items (typically government business) and another one that excludes airplane orders (these can be very large and thus bias the data). The data tend to be very volatile — that is, changes from one month to the next can be very large — so you need to look at several consecutive months to get a good feel for the underlying trend in orders.

OTHER DATA RELEASES

Consumer Confidence — There are two such surveys, one by the University of Michigan and the other by the Conference Board. The Fed is said to look at these surveys as a way of determining likely future spending plans by consumers.

Various Fed Surveys (the Empire State Index, Philly Fed Index) — These surveys are regional in nature and typically only move the markets briefly. However, an unexpected result can lead to large moves in stocks, bonds or the dollar.

Institute for Supply Management (ISM) Surveys — The ISM releases two reports — one for manufacturing and the other for service companies. These reports are actually the first set of new data each month and are thus watched very closely. They include a total index, plus indices on orders, prices and employment and are sometimes used by economists to make last-minute adjustments to their monthly non-farm payrolls forecasts. There are also regional reports that come out prior to the national report. The most widely followed is the Chicago Purchasing Managers Report.

Various housing data, including building permits, new and existing home sales — These items are usually not major market movers, except for stocks in the related industries.

SUMMARY

Hundreds of economic data items are released and reported on each month. In today’s issue I’ve tried to touch on the most important of these releases. Hopefully these brief introductions will help you understand why you should be aware of these reports. They should also help you interpret the Economic Calendar we present in each issue of the StreetAuthority Investor Update .

OTHER ECONOMIC INFORMATION SOURCES

Because economic releases can have a major impact on the markets, whether you’re investing or trading, it’s critically important to be aware of the upcoming economic calendar. With that in mind, below you will find a listing of some of the most useful economic data related web sites on the Internet.

Yahoo Finance Weekly Economic Calendar — This site allows you to easily browse through past, present, and future economic releases. It also features prior data, market expectations and Wall Street forecasts for each economic release.

New York Fed Economic Data Links — For those of you craving more in-depth economic information — such as entire economic releases in Adobe Acrobat format — as well as links to additional economic sites, this page will give you everything you need.

We sincerely hope that you find all of the above sites useful in the course of your financial research.