Consumer spending is an important part of modern society, whether it is from buying houses and cars or daily food and beverage expenses, it reflects many valuable information: changes in prices and purchasing power, adjustments in consumption habits and fluctuations in consumer confidence… The financial market, as one of the important manifestations of economic activity, is affected by the release of many important economic data. In the previous article Analysis of Inflation, we introduced some important economic indicators related to inflation; this time we will further interpret some other market-affecting economic data worth paying attention to, taking the United States as an example.  

Summary  

• Retail sales refer to the sales volume of goods in the retail industry in a country or region within a certain period of time. It reflects the level and willingness of consumer spending, and is an important indicator to measure economic activity and growth.
• NFP refers to the number of non-farm jobs added in the United States in a month, including the private sector and government sector. It is one of the important indicators to reflect the U.S. labor market conditions and employment level.
• When observing and using economic data, investors should understand the definition and calculation method of the data - understanding its meaning and source can help investors grasp the relationship between economic phenomena and trends more accurately.

Retail Sales

Retail sales refer to the sales volume of goods in the retail industry in a country or region within a certain period of time. It reflects the level and willingness of consumer spending, and is an important indicator to measure economic activity and growth. Generally speaking, retail sales growth indicates that consumer confidence is strengthened, economic prosperity, which is a positive factor for both the stock market and currency market; on the contrary, retail sales decline indicates that consumer confidence is weakened, economic recession trend.  

Taking the latest U.S. retail sales as an example, its items include automobiles and auto parts, food and beverage stores, general merchandise stores, food services, gas stations, non-physical stores, building materials and gardening supplies stores, health and personal care stores, clothing and clothing accessories stores, furniture and home furnishings stores, electronics and appliances stores, sporting goods, hobbies, books and music stores, other miscellaneous stores totaling 13 items:  

The proportion in the above figure will change with market demand and supply, consumer preferences and behavior, economic environment and policy factors. If changes occur, the U.S. Census Bureau will regularly collect and publish relevant data, and adjust and revise the data to reflect the actual sales situation.

The limitation of retail sales is that it cannot reflect all consumer spending, such as service spending is not included; it also cannot reflect the actual purchasing power changes of consumers, because it does not take into account the impact of price changes; it is also affected by seasonal factors such as holidays and climate.

Nonfarm Payrolls

NFP refers to the number of non-farm jobs added in the United States in a month, including the private sector and government sector. It is one of the important indicators to reflect the U.S. labor market conditions and employment level, as well as an important basis for the Federal Reserve to formulate monetary policy and interest rate decisions. Generally speaking, NFP increase indicates strong U.S. economic growth, improved labor market conditions, usually positive factors for both the dollar and U.S. stocks; on the contrary, NFP decrease indicates weak economic growth, deteriorating labor market conditions.

The U.S. Census Bureau releases NFP once a month, which is calculated by two surveys: one is household survey (Household Survey), and the other is industrial survey (Establishment Survey). Household survey is based on sampling survey of about 60 thousand households to obtain basic information on labor market such as employment rate unemployment rate labor force participation rate etc… Industrial survey is based on sampling survey of about 148 thousand non-farm units to obtain information such as employment number wage level working hours etc…  

Like any other sampling survey NFP is affected by statistical methods such as sampling error and seasonal factors etc.; it is worth noting that as a comprehensive indicator it may not reflect different industries sectors regions etc… The employment situation and changes in sub-markets also cannot reflect details such as different types quality value-added etc… And NFP is also a lagging indicator which exists in any statistical data; the statistical content and methods will also change with the specific economic development and policy.  

Consumer Confidence Index

The U.S. Consumer Confidence Index is a data released monthly by The Conference Board (a non-governmental organization) which is based on a sampling survey method to ask five questions about current and future economic conditions to about 5,000 households and assign different scores based on different answers then weighted average the scores to get the index value.  The index reflects consumer confidence in current and future economic conditions personal income employment prices etc… It reflects consumer expectations and willingness to spend and is an important indicator to predict economic trends and consumer spending.

Generally speaking consumer confidence index increase indicates that consumers are more optimistic about the economic outlook and consumer spending increases. The content of the U.S. Consumer Confidence Index includes the following two aspects:

Current Economic Situation Index (Present Situation Index): reflects consumer evaluation of current economic situation and labor market.

Expected Economic Situation Index (Expectations Index): reflects consumer expectations for economic situation and labor market in the next six months.  

The limitation of the consumer confidence index is that it cannot reflect consumer actual behaviour such as retail sales etc.; it also cannot reflect consumer purchasing power because it does not take into account income level and price changes etc.; it is also affected by emotional fluctuations and external events; in addition its survey sample is relatively small compared to other indicators mentioned above.    

The content of the consumer confidence index may vary depending on different statistical institutions and countries but generally include the following aspects: current economic situation expected economic situation current employment situation expected employment situation current purchasing willingness and expected purchasing willingness.  

Personal Consumption Expenditures Index

The latest U.S. Personal Consumption Expenditures Index items include total core (excluding food and energy) goods services durable goods non-durable goods etc… A total of 6 items; different countries or regions PCE index may have different calculation methods and items therefore many times can not be directly compared. But generally reflect the personal consumption expenditure changes of goods and services. It reflects consumer purchasing power and price level and is an important indicator to measure inflation and economic activity.    

Compared with retail sales PCE index can reflect service items (such as medical education financial etc.) in personal consumption expenditure compared with retail sales more reflect personal level of consumption expenditure situation.  

Investment Ideas and Suggestions

Economic data will have a direct impact on market expectations for example the latest U.S. PCE index released after higher than market expectations of 4.6% growth rate directly led to the market for the next Fed rate hike decision betting. However these economic data often have a certain lag policy effects will not immediately reflect on various data but will gradually form over a period of time.  

When observing and using economic data investors should understand the definition and calculation method of the data: different time and space indicators will have differences such as GDP CPI PPI PCE etc… Various key data. Understanding its meaning and source can help investors grasp the relationship between economic phenomena and trends more accurately.