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Commodities Market Indicators: U.S. Government Data

The commodity waters can be perilous at times, and knowing how to navigate them is crucial. Keeping your eye on where the markets are heading will help you develop a winning investment strategy. Data compiled by the U.S. government is free and easy to access.

Consumer Price Index

The Consumer Price Index (CPI), compiled by the Bureau of Labor Statistics (BLS), is a statistically weighted average of a basket of goods and services purchased by consumers around the country. The CPI is the closest thing to a cost-of-living index and is sometimes used to gauge inflationary trends.

If the CPI is rising, economists start worrying that inflation is creeping up. The CPI is sometimes broken down further into the Core CPI, which excludes items like food and energy.

Comparing the CPI with the Core CPI can give you a good idea of how much consumers are spending on commodities such as energy and agricultural products.

EIA Inventory Reports

The inventory reports are released every Wednesday morning, at 10:30 a.m. EST by the Energy Information Administration (EIA), which is the statistical branch of the Department of Energy (DOE), and they detail activity in the country’s energy sector.

They include a summary of weekly supply estimates, crude oil supply, and disposition rates (consumer consumption), as well as production, refinery utilization, and any movement in stock changes. The EIA petroleum inventory reports may not get wide coverage in the press, but they have a direct impact on the price of crude oil and other energy products.

Federal Funds Rate

When the financial press talks about interest rates going up or down, they’re almost always referring to the Federal Funds Rate. This is the short-term interest rate at which banks charge each other overnight for Federal Reserve balances.

When the Fed wants to stimulate a sluggish economy, it tends to decrease this short term rate. On the other hand, if the Fed believes that the economy is overheating, and therefore subject to inflation, it increases this rate, which makes it more expensive to borrow money.

Gross Domestic Product

Gross Domestic Product (GDP) is essentially a measure of all the goods and services produced in a country by private consumers, the government, the business sector, and trade (exports - imports). GDP, especially per capita GDP — which measures purchasing power on an individual level — is a good indication of the likely demand for commodities.

The higher the GDP growth, the more likely a country is to spend more money on purchasing crude oil, natural gas, and other natural resources. Of course, GDP provides you with a big picture of the economic landscape and may not necessarily identify specific trends. That said, solid and growing GDP is a good measure of economic health and is a bullish indicator for commodities.

While you could theoretically analyze the GDP of all countries, looking at U.S. and Chinese GDP should be sufficient, because these two countries are the biggest purchasers of commodities such as crude oil and steel.

Non-farm Payrolls

Like the Consumer Price Index, non-farm payrolls are compiled by the Bureau of Labor Statistics. Statistically, non-farm payrolls includes the number of individuals with paid salaries employed by businesses around the country. It does not include government employees, household employees, individuals who work in the non-profit sector, and those involved in agriculture.

Non-farm payrolls include information on about 80 percent of the nation’s total workforce, and this number is often used to determine unemployment levels. The non-farm payroll report is released monthly, on the first Friday of the month, and does not include total employment; rather it shows a change between the current employment levels and previous employment levels as measured by the new number of jobs that were added.

The higher the number, the stronger the economy and the more people hired by businesses — which all means that consumers have more money to spend. Although the link is indirect, higher non-farm payroll numbers can be interpreted as a bullish sign for the commodities markets.

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