Economic Indicators

Economic Indicators

Economic indicators

Economic indicators are scheduled economic data releases, declarations and announcements by leading factors in the financial arena. There are many indicators, and each of them differs from the other in their place of origin, target audience and effect on the various financial markets. For convenience purposes we separated the indicators by region – starting with the US indicators, followed by the European indicators and to the Asian indicators.

What are Economic Indicators?

There are a number of economic indicators that offer statistical information about a countries economic activity. Used mostly as a ‘pre-view’ of sorts to establish performance, patterns and prediction on future performance within an economy, such as a business cycle. Learn how the economic indicators can improve your trading with fully licensed and award-winning forex broker. 

Euro indicators

All of the recent and soon to be released economic indicators from the Euro zone. All the indicators explained so you can make informed decisions in your CFD & Forex trading.

Asian indicators

The Asian and Pacific Rim has become a zone of interest to investors in the Forex, Equity and Commodities markets. Here is a list of indicators of note in the region for successful CFD trading.

US indicators

There are a number of Economic Indicators out of the United States. After all, this is the world’s largest economy. Here are some of the most widely watched indicators you must be aware of for your to succeed.

The Most Important UK Economic Indicators

The United Kingdom routinely ranks among the world's biggest economies. While the UK economy pales in comparison to the United States, China, and Japan, it is on par with that of India. The UK economy contributes an estimated 3% – 4% of the total global GDP output. It is the world's premier hub for forex trading by a long margin, a major gateway between the Americas and Europe, and the leader of Commonwealth countries.

It is against this backdrop that UK economic indicators come into sharp focus. The Office for National Statistics (ONS) publishes economic indicators for the UK. The economy is assessed according to several key indicators, notable among them GDP (Gross Domestic Product), Employment Data, Consumer Price Inflation, Interest Rate, and the Balance of Payments, among others. Following back-to-back quarters of negative GDP growth in 2020 (-2.9% in Q1 and -19% in Q2), the UK economy turned around and recorded 16.1% GDP growth in Q3 2020, and 1% GDP growth in Q4 2020. While certainly lacklustre, back-to-back GDP growth helped to resurrect a moribund economy during the pandemic.

The UK unemployment rate climbed rapidly between April 2020 and December 2020, rising from 4% to 5.1%, before it tapered off in January 2021, to level of 5%. By March 2021, the UK unemployment rate a.k.a. jobless rate, remained at the highest level since 2016. The government implemented measures to kickstart the UK economy, notably the Job Retention Scheme (JRS). This program was tasked with supporting approximately 4M UK jobs.

Another important measure of UK economic performance is the inflation rate. Despite all the stimulus measures being passed during the pandemic, the UK inflation rate ebbed and flowed, dropping from 0.7% in October 2020, to 0.3% in November, before rising steadily towards 0.7% again in January 2021. The UK inflation rate then eased to 0.4% in February 2021. Falling prices fuelled by reduced demand tend to facilitate declining inflation rates.

The Bank of England routinely targets an inflation rate of 2%. That figure is deemed essential for economic growth and expansion towards full employment. If major commodities such as Brent crude oil and WTI crude oil prices continue to rise, it may be easier to reach the inflation target. Another important metric to bear in mind is the United Kingdom Interest Rate. While economic activity slowed to a crawl globally, central banks worked overtime to lower the interest rate. This stimulates economic activity by encouraging borrowing. By March 2021, the UK interest rate was at a record low of 0.1%.

The central bank also participates in bond buying programmes valued at £875B (March 2021). By flooding the market with money, and keeping interest rates at ultralow levels, it is much easier to keep economic activity levels up. The Balance of Trade indicates how much the UK owes other nations, or vice versa. In January 2021, the UK deficit plunged to £1.6 billion. Multiple successive periods of decreased trading activity, fuelled by the Brexit and coronavirus restrictions resulted in a contraction of imports and exports, through January 2021.

Types of Economic Indicators

The indicators’ frequencies vary from one indicator to the other; some are daily, others monthly and several are quarterly. Before the indicator occurs there are speculations made by leading financial figures, and british traders base their moves on those speculations. An economic event has a double influence; first when announced, and second when compared to the speculations made before. A big difference between the speculation and the actual number can cause shifts in the market.

Examples of economic indicators include:

  • Unemployment rate
  • Interest rates
  • New building permits
  • Federal funds rate
  • Changes in the Gross Domestic Product (GDP)
  • Income/Wages
  • Consumer Price Index (Inflation)
  • Currency Strength
  • Corporate Profits
  • Balance of Trade

Each indicator can affect more than its own market. For instance, if a government issued a statement that more building permits were given, it will result with more jobs, lowering the unemployed rate and thus leading to higher consumption rate and ending with the strengthening of the local currency.

Economic Indicator Examples

An example for an indicator with a major impact is the Non-Farm Payrolls (NFP), published on a month’s first Friday by the U.S. Bureau of Labor Statistics. This report reveals the unemployed rate in the US, except government, farm and non-profit workers. That covers some 80% of the US working force. A decrease in the unemployed rate, i.e. there are more people working, usually indicates the market is growing. As a result the American Dollar will grow stronger. If a UK trader speculated that beforehand, and opened buying positions prior to the announcement – the outcomes would be to his favour. Naturally, if the unemployed rate rises the Dollar will weaken. Either way, the NFP and the speculations beforehand will cause vibrations in different instruments.

The most recent Euro centric example would be the ECB Interest Rate Decision, that is announced by the European Central Bank. If the ECB are hawkish about the inflationary outlook of the European economy and they raise the interest rates, it is seen as a positive sign for the EUR and the trend would be on a bullish curve. The opposite would be true for the ECB if they keep the current interest rate going, or they decide to cut the interest rate the EUR will suffer and be on a bearish trend. Should the outcome of the indicator be as expected the EUR will not see much impact, however if the predicted outcome is not as expected the element of ‘surprise’ will have the greater market impact.

The Caixin Purchasing Managers’ Index (PMI) is a specific measurement of nationwide manufacturing activity, where attention is given to smaller and medium-sized companies. The news came in during the December 2015 announcement, that this month’s PMI came in lower than the expected figure. The general fear is that, as a result, manufacturers continue to cut on their staff numbers in turn lowering their production output.

Other types of Economic Indicator review market growth demand and supply figures and many other factors that impact markets, instruments, companies and british traders as one.

The Importance of an Economic Calendar

The key to the success for most UK traders is a frequently updated economic calendar. The calendar covers all important events and releases that affect the forex trading markets as well as the economy of a specific country. A great understanding of why markets do what they do, can be found on these calendars while british traders are able to anticipate market moves based on previous, actual and forecasted numbers. With the release of key economic data such as NFP, GDP, etc figures present excellent trading opportunities.

How to use Economic Indicators?

In order to utilize the indicators to one’s advantage, a proper market analysis is required. Some british traders prefer a more elementary research, while others choose a very thorough work and analyses. For all traders the indicators can be a very useful tool requiring close monitoring of the economic calendar. Once the trader knows that a certain event is due to take place, e.g. a country’s consumer supply and demand rate, he will prepare by making a speculation on the number that will be presented. Based on that speculation the UK trader will choose which instrument to trade and if he should open a buy or sell position. Should the trader be accurate the trade can result with substantial profits.

Speculation made on Economic Indicators should be done with a knowledge of relevant markets and financial occurrences, or general events that can affect the content of the indicator. Once knowing all the related factors, the speculation will be based on a firm ground of rational thinking.

Putting Economic Indicators to Work

Any trader, beginner trader or experienced, should familiarise himself with the economic calendar, and learn which indicators are relevant to his trades and how. Once this information is acquired UK traders will find out how their trades become more successful and their earnings can surpass their expectation.

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Put our economic indicators to work!

Euro indicators

All of the recent and soon to be released economic indicators from the Euro zone. All the indicators explained so you can make informed decisions in your Forex & CFD trading.

Euro Zone Balance of Trade – Balance of trade refers to the net imports and exports of the Euro zone. Typically a trade surplus is seen due to the large exports of manufactured goods. A strong trade surplus is a positive for the Euro and for European equity markets.

Euro Zone Composite PMI – The Markit Composite PMI reading tracks a number of business trends in both manufacturing and service industries. A reading above 50 means business activity is expanding and a reading under 50 means business activity is contracting.

Euro Zone GDP Growth – Euro zone GDP measures the total output of all 19 member states. Household consumption makes up for over half the GDP reading on the expenditure side of things. Exports account for 47% of GDP and imports account for 43%. It isn’t only the GDP reading that’s important, but also its change over time as a rising GDP indicates growing economic strength.

Euro Zone Interest Rate – The benchmark interest rate is the main refinancing rate for banks and is set by the European Central Bank. Higher rates (in comparison to other governments) will lead to a stronger currency, while lower rates typically lead to a weaker currency.

Asian indicators

The Asian and Pacific Rim has become a zone of interest to investors in the Forex, Equity and Commodities markets. Here is a list of indicators of note in the region for successful CFD trading. Note that most of these are for China, since it has a larger economic impact on the rest of the world than the smaller economies of Japan, South Korea, Australia and the other countries of the region.

Balance of Trade – China has consistently run a trade surplus since 1995 as it is the manufacturing hub for the world. That trade surplus grew to $421.9  billion in 2019, but has since faltered due to the global pandemic. Investors also watch the import side of this number as it can indicate the growth or contraction of domestic Chinese demand.

China GDP Growth – As the fastest growing major economy in the world the GDP growth in China has been closely monitored. It is also considered by some as a proxy for global growth since China is so heavily involved in exports. Good Chinese GDP growth can help lift crude oil and other commodities, as well as shares of material and industrial companies. Caixin Composite PMI – This is a measure of the business trends in the private sector and it tracks variables such as sales, new orders, employment, inventories and prices. A reading above 50 indicates growth, while a reading below 50 indicates contraction. Japan GDP Growth – As the fourth largest economy in the world, the GDP growth in Japan is an important metric for investors, particularly those interested in trading the Yen. As a fully developed economy, services account for around 62% of GDP, with wholesale and retail trade as well as real estate accounting for much of that. Manufacturing also accounts for 22% of GDP.

Australia GDP Growth – While 65% of Australia’s GDP is based on its service industry, in recent years its economic success and the value of the Australian dollar has been closely tied to the success of its mining, natural resource, and agriculture sectors. Exports of raw materials, especially to China, has become the engine of growth for Australia and that means the fortunes of Australia are tied to Chinese growth.

US indicators

There are a number of Economic Indicators out of the United States. After all, this is the world’s largest economy. Here are some of the most widely watched indicators you must be aware of for you to succeed.

Non-Farm Payrolls (NFP) – This measures the number of people (not including government, non-profit, and farm workers) who entered and exited the workforce. It is a closely watched indicator by british traders in all markets because it is highly indicative of the growing strength or weakness of the U.S. economy. It can impact currency rates, commodities like gold and oil, and equity markets.

Unemployment Rate – Closely related to the NFP this gives a percentage of the labour force currently seeking work but unable to find it. Unemployment can affect all asset classes because of its broad impact on the health of the consumer.

GDP Growth Rate – Like any other nation the growth or contraction in GDP is a critical measurement of the strength or weakness of the overall economy. Historically the U.S. GDP has been trending lower since the 1950s when it was over 4%. Over the past ten years however the average GDP growth has been under 2%.

Housing Starts – This is a measure of the number of new residential housing projects started in the prior month. It includes structures being totally rebuilt on an existing foundation. The report also includes building permits and housing completions. Because housing is a key part of the U.S. economy this reading can show strength or weakness across broad areas of the economy including employment, construction, manufacturing, banking, and of course real estate.

Interest rates – In the U.S. interest rate policy is set by the Federal Reserve Bank. They use interest rates as one way of controlling inflation. Interest rates can also be used to stimulate the economy as businesses and consumers are more likely to borrow when interest rates are low. Conversely a low interest rate will often lead to a weaker U.S. dollar, and a rising interest rate can help to strengthen the U.S. dollar.

Economic indicators FAQ

  • What is the best economic indicator?

    There are dozens of economic indicators being released by every major economic power in the world. With so many to choose from how can you know which one is the best? In many cases it will depend on the market you’re trading. For example, gold markets are impacted heavily by inflation data, but equity markets might not even blink at this data. Equity traders follow indicators like employment and GDP far more closely, but currency traders might not be influenced too much by this data. The most important indicator for a market can also change over time based on market conditions. The best course is to follow all the major indicators and understand their potential impact on the markets you trade.

  • Why is GDP considered such a good economic indicator?

    GDP is considered as important because it gives traders information about the overall size of a country's economy, and how rapidly that economy is growing. The growth rate of GDP is often considered even more important that the actual GDP numbers since it is a better indicator of the health of the economy, and the future output. In the broadest terms a growing GDP means the economy is doing well, and a shrinking GDP indicates the economy could be heading for trouble. Strong GDP can also indicate strong employment, consumer sentiment, and consumer spending, since people and businesses tend to have more money in their pockets when GDP is growing. This can lift asset prices across the board as more money is spent and invested.

  • Which three economic indicators are best?

    Traders continually look for reasons why asset prices are rising or falling. While there are many different factors that can contribute to both rising and falling prices economic factors tend to have the greatest impact on asset performance. That makes it important to know which economic indicators have the greatest impact on prices. In general, the three economic indicators with the greatest influence over market performance are GDP, employment data, and inflation data. These three can tell a trader where we are in an economic cycle, which helps determine which sectors and assets will perform best, and which will perform worst.