What You Should Know about Business Activity for Trading - dummies

What You Should Know about Business Activity for Trading

By Michael Griffis, Lita Epstein

A number of key economic indicators can give traders a good idea of what business is doing and how that information may impact the stock markets. Key business indicators to watch include

  • The National Association of Purchasing Managers report (NAPM): One of the first economic indicators released each month is the NAPM report, which surveys purchasing managers and provides reviews of new orders, production, deliveries, and inventories. This report is released at 10 a.m. the first business day of each month and reflects data compiled from the previous month.

  • Durable goods orders: The Commerce Department releases another critical economic indicator of business activity in the area of durable goods orders. This indicator measures the dollar volume of orders, shipments, and unfilled orders of durable goods, or types of merchandise that have a life span of three years or more.

    This report serves as a leading indicator of manufacturing activity and can move the stock market, especially when its numbers vary from expectations.

  • Housing starts and building permits: This report is also released by the Commerce Department. It can be a leading indicator of the direction the economy will take. When the number of permits rises, a positive economic indicator results.

    About 25 percent of investment dollars are plowed into housing starts, and that makes up about 5 percent of the overall economy. The report is broken down by regions — Northeast, Midwest, South, and West — so you can also get a strong indication of the strength of the economy on a regional basis.

    You can also track other reports on myriad industries.

  • Regional manufacturing surveys: Each Federal Reserve Bank district compiles data from regional manufacturing surveys that can help you find a score of indicators including new orders, production, employment, inventories, delivery times, prices, and export and import orders. Positive reports indicate an expanding economy. Negative reports indicate a contracting economy.

    The two most closely watched are the Philadelphia survey and the Chicago survey. If you’re trading in regional stocks, following the manufacturing surveys from the Federal Reserve Banks in key regions that you follow can help you determine the direction of the economy for the areas most relevant to the stocks you’re trading.

You can get a lot of this information and more about the U.S. economy on the mobile app developed by the U.S. Census Bureau, Bureau of Labor Statistics, and Bureau of Economic Analysis. It’s called America’s Economy, and it’s available for Apple and Android. This app provides real-time updates for 16 key economic indicators.