Importance (A-F): This release merits a D-.
Source: Federal Reserve.
Release Time: 15:00 ET on the fifth business day of the month (data for two months prior).
Raw Data Available At: www.federalreserve.gov.
This monthly measure of consumer debt is volatile and subject to massive revisions. It is also released well after every other consumer spending indicator, including weekly chain store sales, auto sales, consumer confidence, retail sales, and personal consumption. For these reasons, the market almost never reacts to the consumer credit report.
Consumer credit is broken down into three categories: auto, revolving (ie, credit card), and other. Since we already have indications on total consumer spending well before this release, there is little to be gained from learning what portion of spending was financed through acquisition of debt. Periods of strong spending can be accompanied by relatively weak credit growth and vice versa, so this measure fails even as a coincident or lagging indicator.
Monday, March 8, 2010
Construction Spending
Importance (A-F): This release merits a D.
Source: The Census Bureau of the Department of Commerce.
Release Time: 10:00 ET on the first business day of the month (data for two months prior).
Raw Data Available At: www.census.gov.
The construction spending report is broken down between residential, non-residential, and public expenditures on new construction. The monthly changes are both volatile and subject to huge revisions, so this report rarely has any market impact. Only trends extending over three months or more can be viewed as significant.
The spending figures are in both nominal and real (inflation adjusted) dollars. The real figures for residential and nonresidential spending are used by economists to forecast the investment component of quarterly GDP. The annualized percent changes between the quarterly averages of these two components match up well with residential investment and commercial structure changes in the GDP accounts.
Source: The Census Bureau of the Department of Commerce.
Release Time: 10:00 ET on the first business day of the month (data for two months prior).
Raw Data Available At: www.census.gov.
The construction spending report is broken down between residential, non-residential, and public expenditures on new construction. The monthly changes are both volatile and subject to huge revisions, so this report rarely has any market impact. Only trends extending over three months or more can be viewed as significant.
The spending figures are in both nominal and real (inflation adjusted) dollars. The real figures for residential and nonresidential spending are used by economists to forecast the investment component of quarterly GDP. The annualized percent changes between the quarterly averages of these two components match up well with residential investment and commercial structure changes in the GDP accounts.
Conference Board Consumer Confidence
Importance (A-F): This release merits a B-.
Source: The Conference Board.
Release Time: 10:00 ET on the last Tuesday of the month (data for current month).
Raw Data Available At: www.tcb-indicators.org.
The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant.
The index consists of two subindices - consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Source: The Conference Board.
Release Time: 10:00 ET on the last Tuesday of the month (data for current month).
Raw Data Available At: www.tcb-indicators.org.
The Conference Board conducts a monthly survey of 5000 households to ascertain the level of consumer confidence. The report can occasionally be helpful in predicting sudden shifts in consumption patterns, though most small changes in the index are just noise. Only index changes of at least five points should be considered significant.
The index consists of two subindices - consumers' appraisal of current conditions and their expectations for the future. Expectations make up 60% of the total index, with current conditions accounting for the other 40%. The expectations index is typically seen as having better leading indicator qualities than the current conditions index.
Chicago PMI
Importance (A-F): The Chicago PMI merits a B.
Source: Chicago Purchasing Managers Association.
Release Time: Last business day of the month at 10 ET for the current month.
In Brief
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The Philadelphia Fed's survey is first each month, actually coming out during the third week of the month for which it is reporting. Several smaller surveys are then released before the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the NAPM and are of little value. The purchasing managers' reports are measured like the national NAPM - 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the Philadelphia and Atlanta Fed indices, 0 is the breakeven mark.
These surveys can be of some help in forecasting the national NAPM - particularly the Philadelphia and Chicago surveys which are more closely watched due to their timeliness and the fact that these regions represent a reasonable cross section of national manufacturing activities.
In Depth
The market has been bombarded with a bevy of surveys purporting to measure manufacturing activity in every nook and cranny of the country. First it was Philadelphia, then Chicago, and Detroit, Milwaukee, New York, Cincinnati, Richmond, Atlanta, Boston, and there might as well have been a Nome survey. This hodge-podge of releases is begging for someone - namely us - to come along and cut this group down to a more manageable size, say....two. And the winners are...
Nuts and Bolts
Not so fast. We need a build-up before we cut to the proverbial chase. Let's start with the issue of what these manufacturing surveys are trying to measure and how they go about doing it. The leader of this pack of regional surveys is the NAPM - National Association of Purchasing Managers - index. It has been around since 1931 (1948 on an uninterrupted basis), it is national, and it is one of the most timely measures of manufacturing activity available. In other words, it sets the standards by which its progeny are measured.
The NAPM index is actually a composite of five sub-indices - new orders, production, supplier deliveries, inventories, and employment. In surveying over 300 companies each month, the NAPM asks for positive, negative, or unchanged readings on each of these indicators. The positive responses are added to one half of the unchanged responses to produce the diffusion index. For example, if 50% of respondents reported stronger orders, 40% reported weaker, and 10% unchanged, the diffusion index for orders would be 55%, the 50% positive plus half of the 10% unchanged. To calculate the total index, the NAPM uses weights for the five indicators, which are as follows: 30% new orders, 25% production, 20% employment, 15% supplier deliveries, and 10% inventories.
The Selection Criteria
Since this methodology has made the NAPM index one of the better leading indicators of economic activity over the years, we will measure the usefulness of the regional indices based on their ability to help in forecasting the national index. In our effort to arrive at the two most important regional index, these criteria make eliminating most of the candidates easy for one simple reason - they are released after the national index. While regional economic developments are of interest to those who live in the region, they are not particularly important to the Treasury market. If a region cannot help in forecasting national trends, then its data are not particularly useful. So say adios to Atlanta, Richmond, Kansas City, and who knows how many others which have cropped up in recent years.
And the Winners Are...
Let's focus on the regional surveys which precede the release of the national index on the first business day of each month (with data for the prior month). The contestants are Philadelphia, Chicago, Milwaukee, Detroit, New York, and the most recent addition to the bunch - the APICS survey. We looked at the correlation of all of these indices to the national NAPM and found substantial differences in their forecasting ability. The winners are...drum roll please...Chicago and Philadelphia, in that order.
The Chicago NAPM index, which is released on the last business day of the month (with data for the same month), has an impressive 91% correlation with the national NAPM. The Philadelphia Fed index, which is released on the third Thursday of the month (with data for the same month), was a distant second at 76%. Philly Fed's performance improved slightly to 78% when Briefing measured its results using the NAPM methodology. The Philly index as released is not a composite of its subindices, as the NAPM is. Instead, the Philly Fed survey asks many questions, but the total index is based on the general question "are business conditions better or worse than last month." It is often the case that a weighted measure of the individual questions on specifics such as new orders and production moves in a different direction than the index based on the general question.
The rest of the regional indices fared poorly, ranging from correlations as poor as 55% (APICS) to 73% (Milwaukee). Chicago was the clear winner, but the Philly Fed index definitely deserves recognition, particularly since it is released so much earlier than the rest. In the future, then, we would recommend setting aside most of the regional manufacturing surveys and focussing on just Philly and Chicago, which offer the best hope of predicting the national index. And when you look at the Philly index, improve your chances by looking at the Philly numbers calculated on an NAPM basis, which Briefing will be happy to provide.
Source: Chicago Purchasing Managers Association.
Release Time: Last business day of the month at 10 ET for the current month.
In Brief
There are many regional manufacturing surveys, and they tend to be ranked in order of timeliness and the importance of the region. The Philadelphia Fed's survey is first each month, actually coming out during the third week of the month for which it is reporting. Several smaller surveys are then released before the Chicago purchasing managers' report on the last day of each month. A few, such as the Atlanta and Richmond Fed surveys, are released after the NAPM and are of little value. The purchasing managers' reports are measured like the national NAPM - 50% marks the breakeven line between an expanding and contracting manufacturing sector. For the Philadelphia and Atlanta Fed indices, 0 is the breakeven mark.
These surveys can be of some help in forecasting the national NAPM - particularly the Philadelphia and Chicago surveys which are more closely watched due to their timeliness and the fact that these regions represent a reasonable cross section of national manufacturing activities.
In Depth
The market has been bombarded with a bevy of surveys purporting to measure manufacturing activity in every nook and cranny of the country. First it was Philadelphia, then Chicago, and Detroit, Milwaukee, New York, Cincinnati, Richmond, Atlanta, Boston, and there might as well have been a Nome survey. This hodge-podge of releases is begging for someone - namely us - to come along and cut this group down to a more manageable size, say....two. And the winners are...
Nuts and Bolts
Not so fast. We need a build-up before we cut to the proverbial chase. Let's start with the issue of what these manufacturing surveys are trying to measure and how they go about doing it. The leader of this pack of regional surveys is the NAPM - National Association of Purchasing Managers - index. It has been around since 1931 (1948 on an uninterrupted basis), it is national, and it is one of the most timely measures of manufacturing activity available. In other words, it sets the standards by which its progeny are measured.
The NAPM index is actually a composite of five sub-indices - new orders, production, supplier deliveries, inventories, and employment. In surveying over 300 companies each month, the NAPM asks for positive, negative, or unchanged readings on each of these indicators. The positive responses are added to one half of the unchanged responses to produce the diffusion index. For example, if 50% of respondents reported stronger orders, 40% reported weaker, and 10% unchanged, the diffusion index for orders would be 55%, the 50% positive plus half of the 10% unchanged. To calculate the total index, the NAPM uses weights for the five indicators, which are as follows: 30% new orders, 25% production, 20% employment, 15% supplier deliveries, and 10% inventories.
The Selection Criteria
Since this methodology has made the NAPM index one of the better leading indicators of economic activity over the years, we will measure the usefulness of the regional indices based on their ability to help in forecasting the national index. In our effort to arrive at the two most important regional index, these criteria make eliminating most of the candidates easy for one simple reason - they are released after the national index. While regional economic developments are of interest to those who live in the region, they are not particularly important to the Treasury market. If a region cannot help in forecasting national trends, then its data are not particularly useful. So say adios to Atlanta, Richmond, Kansas City, and who knows how many others which have cropped up in recent years.
And the Winners Are...
Let's focus on the regional surveys which precede the release of the national index on the first business day of each month (with data for the prior month). The contestants are Philadelphia, Chicago, Milwaukee, Detroit, New York, and the most recent addition to the bunch - the APICS survey. We looked at the correlation of all of these indices to the national NAPM and found substantial differences in their forecasting ability. The winners are...drum roll please...Chicago and Philadelphia, in that order.
The Chicago NAPM index, which is released on the last business day of the month (with data for the same month), has an impressive 91% correlation with the national NAPM. The Philadelphia Fed index, which is released on the third Thursday of the month (with data for the same month), was a distant second at 76%. Philly Fed's performance improved slightly to 78% when Briefing measured its results using the NAPM methodology. The Philly index as released is not a composite of its subindices, as the NAPM is. Instead, the Philly Fed survey asks many questions, but the total index is based on the general question "are business conditions better or worse than last month." It is often the case that a weighted measure of the individual questions on specifics such as new orders and production moves in a different direction than the index based on the general question.
The rest of the regional indices fared poorly, ranging from correlations as poor as 55% (APICS) to 73% (Milwaukee). Chicago was the clear winner, but the Philly Fed index definitely deserves recognition, particularly since it is released so much earlier than the rest. In the future, then, we would recommend setting aside most of the regional manufacturing surveys and focussing on just Philly and Chicago, which offer the best hope of predicting the national index. And when you look at the Philly index, improve your chances by looking at the Philly numbers calculated on an NAPM basis, which Briefing will be happy to provide.
Business Inventories
Importance (A-F): This release merits a C-.
Source: The Census Bureau of the Department of Commerce.
Release Time: 08:30 ET around the 15th of the month (data for two months prior).
Raw Data Available At: www.census.gov.
The business inventories report includes sales and inventory statistics from all three stages of the manufacturing process (manufacturing, wholesale, and retail). But by the time it is released all three of its sales components and two of its inventory components have already been reported. Because retail inventory is the only new piece of information it contains, the market usually ignores the business inventories report.
However, sometimes retail inventories swing enough to change the aggregate inventory profile. This may affect the GDP outlook. When it does, the report can elicit a small market reaction.
The aggregate sales figures are dated and they say little about personal consumption. They are actually a good coincident indicator, but the market is far more interested in forward-looking statistics.
The inventory-to-sales (I/S) ratio measures the number of months it would take to deplete existing inventory at current sales rates. A relatively low (high) I/S ratio may mean that manufacturers will have to build up (draw down) inventory levels. Depending on the strength of final demand and the degree to which recent inventory changes have been intended or unintended, this can have an effect on the industrial production outlook. Note that this information is much more useful to market economists than it is to other market participants.
Source: The Census Bureau of the Department of Commerce.
Release Time: 08:30 ET around the 15th of the month (data for two months prior).
Raw Data Available At: www.census.gov.
The business inventories report includes sales and inventory statistics from all three stages of the manufacturing process (manufacturing, wholesale, and retail). But by the time it is released all three of its sales components and two of its inventory components have already been reported. Because retail inventory is the only new piece of information it contains, the market usually ignores the business inventories report.
However, sometimes retail inventories swing enough to change the aggregate inventory profile. This may affect the GDP outlook. When it does, the report can elicit a small market reaction.
The aggregate sales figures are dated and they say little about personal consumption. They are actually a good coincident indicator, but the market is far more interested in forward-looking statistics.
The inventory-to-sales (I/S) ratio measures the number of months it would take to deplete existing inventory at current sales rates. A relatively low (high) I/S ratio may mean that manufacturers will have to build up (draw down) inventory levels. Depending on the strength of final demand and the degree to which recent inventory changes have been intended or unintended, this can have an effect on the industrial production outlook. Note that this information is much more useful to market economists than it is to other market participants.
Auto and Truck Sales
Importance: (A-F): This release merits a C-.
Source: Individual auto manufacturers, seasonal factors by the Commerce Department.
Release Time: Varies by auto maker from the first business day to the third business day of the month (data for month prior).
In Brief
Auto and Truck Sales measure the monthly sales of all domestically produced vehicles. They are considered an important indicator of consumer demand, accounting for roughly 25% of total retail sales. Demand for big ticket items such as autos and trucks tends to be interest rate sensitive, making the motor vehicle sector a leading indicator of business cycles.
Each auto maker reports sales individually. The reports are typically released over the course of the first three business days of the month. Using the individual reports, a total annual sales pace can be calculated after applying Commerce Department seasonal factors. It is this annual sales pace that the market refers to when discussing auto and truck sales for the month.
In Depth
Vehicle sales figures rarely grab the attention of the market probably for two reasons. First, though the specifics of the data are not terribly difficult to understand, their implications are a little hard to trace. Second, unlike many economic releases, vehicle sales are not released all at once and at the same time every month. This makes it difficult for the market to quickly interpret what the numbers mean for the overall consumption picture and to react accordingly.
This is what happens in terms of vehicle sales during the course of any given month:
The individual vehicle manufacturers report their sales results during the first three or four days of the month.
A day after the last manufacturer reports the Bureau of Economic Analysis releases its estimate of unit auto sales.
About a week after that the BEA releases its estimate of unit truck sales.
The Census Bureau releases its retail sales report, including a measure of sales at automotive dealers, usually around the 13th of the month.
Roughly two weeks after that the BEA releases its personal income and outlays release, including a measure of spending on motor vehicles and parts.
Each item in this list warrants a more detailed discussion.
Manufacturers
Most vehicle manufacturers usually always report sales results on the first business day of the month; Ford does not report until the third business day. As these individual results trickle out over the news wires throughout the day, diligent economists and market analysts are busy calculating running totals and applying seasonal factors to them--the BEA supplies factors for the coming six months in advance--in order to come up with approximations for auto and truck sales rates. These figures are some of the first hard spending data for any given month; comparing these derived rates to those from months and years prior is a big help when it comes to formulating a consumption forecast for the month.
Unit Sales
Once economists and analysts have translated individual sales results into annual rates, they turn to the BEA to provide "official" unit sales rates. Unfortunately, though the BEA is using the same seasonal factors as the rest of us, more often than not it produces unit rates that are modestly different than the ones that market previously had in mind. Thankfully, however, these differences usually pop up in the individual sales categories--domestic car sales, import car sales, domestic truck sales, and import truck sales--but wash out when all the vehicle types are aggregated.
Retail Sales
With unit sales rates in hand we can proceed to forecast the auto sales contribution to the retail sales figure. And this link is important. In fact, autos often prove to be such a significant swing factor that retail sales are scrutinised on both a total and an excluding-autos basis. It is also worth remembering that the auto term in the retail report is notoriously difficult to estimate; it is not at all rare to see it decline (increase) during a month when unit auto sales rise (fall). Still, by the time the retail sales report rolls around, a few other preliminary spending gauges can be used in conjunction with the unit auto data to get a pretty good read on whether retail consumption rose or fell for the month.
Personal Consumption Expenditure
With unit sales rates and retail auto spending data in hand analysts can hone their estimates for the auto category in the personal consumption release. Many analysts place relatively more emphasis on the retail auto figures to sharpen their PCE estimates, but the unit auto numbers typically have better predictive power for that series. Besides, it is not commonly known that the BEA does not rely at all on the the retail sales data to produce its consumption estimates. Thus, as an important component of the monthly consumption figures that go directly into the quarterly GDP calculation, the PCE auto data are most important to economic forecasters.
Subscribe to:
Posts (Atom)