Macroeconomic indicators refer to statistics which indicate the present status of the economy of a country. This depends on a certain area of the economy such as trade, labor market, and industry among others. The indicators are published frequently at a particular time by agencies of the government, as well as, the private sector (Markets.Com, 2013). When the macroeconomic indicators are appropriately used, they can be helpful for Forex traders. In the real sense, the statistics assist these traders in monitoring the growth of the economy of a particular state. The statistics are monitored and evaluated by almost every individual in the financial markets. Once the statistics are published, volatility of the market is observed, and its degree depends on the significance of the indicator to the economy. For this reason, it is essential for one especially those in the business field to understand which indicators are crucial and what they represent. There are a variety of macroeconomic indicators in the United States. Furthermore, there are numerous private reports, which can be applied in the evaluation of the essentials of forex. It is vital to take the time not only to look at the figures, but also comprehend their meanings and how they impact on the country’s economy. This section, therefore, focuses on macroeconomic indicators and the state in consideration is the United States.
One of the key indicators in the US is the interest rates announcement. The rates of interest play a significant role in influencing the prices of the dollar in the foreign exchange market. Central banks are the most influential actors as they are the ones responsible for setting interest rates (Markets.Com, 2013). These rates influence the flows of investment in the country. Because currencies are reflections of the economy of a country, any variations in the rates of interest impact on the relative value of currency in association with each other. In this case, when the central bank of the United States alters these rates, forex traders are caused to experience volatility and movement. In forex trading, precise assumption of the actions of the central bank can facilitate the chances of the trader for a successful business. The interest rate of the United States as at the mid of May was at 0.25%. This rate has been between 0- 0.25% over many years.
Another essential macroeconomic indicator in the United States is the Gross Domestic Product (GDP). This represents the measure of the economy of a nation. In this case, it is the value of the products and goods produced in a country within a period one year. Because the figure of GDP is frequently regarded as a lagging indicator, many traders are concerned with the reports (two) given before the ultimate GDP figures are issued (Markets.Com, 2013). The reports are the advance and the preliminary report. Considerable revisions that occur between these reports can lead to significant volatility. The GDP of the United States is currently at 15094 billion dollars.
The Consumer Index Price (CPI) is another macroeconomic indicator in the US and possibly, the most vital indicator of inflation. This indicator reflects alterations in the retail prices level for the customer basket. Inflation and the purchasing power of the dollar within the borders are tied directly to each other. In addition, inflation influences the standing of the dollar on the global markets (Markets.Com, 2013). If, for instance, the economy grows in usual circumstances, an increase in the Consumer Price Index can result in the fundamental interest rates. As a consequence, this results in a rise, in the attractiveness of the dollar.
Employment indicators in the United States represent the overall welfare of the country’s economy or rather what economists refer to as the business cycle. In this case, it is essential for one to know the number of jobs that are being established or destructed, the proportion of the labor force that is actively working, as well as, the number of individuals who claim to be unemployed (Markets.Com, 2013). This is essential in understanding how an economy is functioning. In order to measure the inflation in the country, it is crucial to monitor the rapidity at which wages in the country are improving. The rate of employment in the United States is at 7.50% as compared to 7.85 and 8.5 in 2012 and 2011 respectively. The country’s current population is at 311.59 million while the inflation rate is at 1.50% (Trading Economics, 2013). The rate for 2011 was 3.0% while for 2012 was at 1.7%.
The retail sales macroeconomic indicators are issued on a monthly basis. They are crucial especially to the foreign exchange traders since they represent the general consumer spending strength, as well as, the achievement of retail stores. This report is helpful especially because it is issued on a timely basis and indicates the wider spending patterns of consumers, which are adjusted for variables that are seasonal (Markets.Com, 2013). This indicator can be used to forecast the performance of indicators that are lagging and to evaluate where the economy is heading to. The current retail sales YoY is at 3.70% while MoM is at 0.10%.
The balance of payments is an essential indicator in the United States. This represents the proportion between the amount that a country receives and payments to other countries. This ratio reflects the total trade balance, foreign trade operations, transfer payments, and balance between import and export (Markets.Com, 2013). If the amount received is higher than the amount paid to other countries, then there is said to be a positive balance of payments. Therefore, a surplus represents a favorable indicator for growth of the US dollar.
Government Fiscal and Monetary policy: Such things that imply economy stabilization such as inflation control, full employment, and equitable balance of payments is are among the goals pursued by the United State’s government in an attempt to attain through manipulation of monetary and physical policies. The fiscal policy of an economy relates to expenditures and taxes while monetary policy is related to the supply of credit, money, and other essential financial assets and to financial markets.
The exchange rate is an essential macroeconomic indicator that refers to the rate at which a currency, in this case dollar may be converted into another. This rate of exchange is applied when just converting a currency to another. This might be for purposes such as travel to another state. It could also be for the purpose of trading or speculating in the foreign exchange market. There are numerous factors that affect this rate including inflation, interest rates, the economy, and the political status of a country. This rate is also referred to as the currency exchange rate and foreign exchange rate.
Economic growth refers to a constant development in the economy’s productive capacity. This indicates a growth in the overall national income. The current economic growth of the United States is at 2.50% (IMF, 2013).
There are other factors that need to be considered in discussing the indicators of the United States. For instance, the government budget is currently at -8.50% and the current Account stands at -3.00 while the country’s debt to GDP is at 101.60%. These appear to be contrasting the economy of the country, which is ranked among the most strongest.
USD EUR GBP JP1 CHF CAD AUD MXN
USD 1.2969 1.5257 0.9786 1.0415 0.9854 0.9902 0.0823
EUR 0.7711 1.1764 0.7546 0.8031 0.7598 0.7635 0.0634
GBP 0.6554 0.8500 0.6414 0.6826 0.6459 0.6490 0.0539
JPY 102.19 132.52 155.91 106.42 100.69 101.19 8.4081
CHF 0.9602 1.2452 1.4649 0.9396 0.9462 0.9508 0.0790
CAD 1.0148 1.3161 1.5483 0.9931 1.0569 1.0049 0.0835
Ref: (The University of British Columbia, 2013).
The Euro currency is doing well in the market. The GDP of the European countries is at 13076 billion US dollars which when compared to that of the US which is at 15094 is not a bad figure. The GDP YoY is at -0.20% as compared to 1.80% of the US, and GDP QoQ is at 0.50% when compared to 2.50% of the United States. The inflation rate in Europe is at 1.20% while that of the United States is at 1.50%. The unemployment rate in Europe is a bit higher than that of the United States. The rate is at 12.10% (population- 332.99) as compared to 7.5% (population- 311.59) of the United States. The government budget of Europe is at -3.70% while that of the US is -8.50%. The Debt to GDP in Europe is at 90.60% lower than that of the US, which is at 101.60%. The exchange rate in Europe is 1.30% while that of the United States is at 119.89%. The current Account that forms the basis for illustrating the table is at 1.50 while that of the United States is at -3.00.
The current budget deficit of the United States stands at 973 billion dollars and is predicted to lower to 744 billion dollars. The budget deficit has been decreasing over the past years, and this implies a positive overall development for the country. For instance, the amounts for the years 2012 and 2011 were at 1.057 and 1.299 trillion dollars respectively. The fiscal policy of the country relates to taxes and expenditures. The government total spending for 2013 is 6.2 trillion with 1.1 trillion for pensions, 1.1 trillion on health care, 0.8 trillion on education, 0.9 trillion on defense, and 0.7 trillion dollars on the general human welfare (CIA, 2013). The tax system in the US is set up on state and federal level. Types of taxes include sales, income, capital gains, VAT. Taxes are imposed on all individuals whether rich or poor either directly or indirectly. The VAT rate is not standard and varies between 55 to 10%.
In the US, the monetary policy is what the central bank (Federal Reserve) does to influence credit and money in the economy. This affects the performance of the economy and interest rates. The objectives of this policy in the US include promoting maximum employment, moderating interest rates and stabilizing prices. The Federal Reserve uses open market operations, reserve requirements, and discount rates as tools of monetary policy. Activities in the open market operations are buying and selling of government securities (Markets.Com, 2013). The discount rates are charged to depository institutions while Reserve requirements are the proportions of deposits that financial institutions should maintain. This is the current monetary policy of the US.
There are a series of measures that are can be recommended by the central bank, and the government, which when effectively implemented may lead to a positive impact especially on the country’s economy. The present fiscal policy of the country threatens its competitiveness. For the country to prosper, it must remain attractive for firms to offer competitive salaries that are consistent with rising standards of living. The country’s debt threatens this achievement. Maintaining a stable economy is important for services of social security, education, Medicare, and other essential services by the state. The government should ensure that spending is done in accordance to necessity to avoid overcrowding. Maintaining stable rates for the banks is essential to maintain the economy of the country. The state should be kept at a sustainable fiscal path. Thus, the debt challenges have to be resolved. Stabilizing the GDP is also necessary in this.
IMF. (2013, May 15). IMF — International Monetary Fund Home Page. IMF — International Monetary Fund Home Page. Retrieved May 16, 2013, from http://www.imf.org
Markets.Com. (2013, January 14). Main Macroeconomic Indicators. Online Forex & CFD Trading|Trade Currencies, Gold, Oil and Major Indices. Retrieved May 16, 2013, from http://www.markets.com/education/fundamental-analysis/main-economic-indicators.html
The Economist. (2013, May 15). Economics A-Z terms beginning with A | The Economist. The Economist – World News, Politics, Economics, Business & Finance. Retrieved May 16, 2013, from http://www.economist.com/research/Economics/alphabetic.cfm
Trading Economics. (2013, May 15). TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. Retrieved May 16, 2013, from http://www.tradingeconomics.com/
CIA (2013) The World Factbook. Retrieved from www.cia.gov/library/publications/the-world-factbook
The University of British Columbia (2013, April 5). PACIFIC Exchange Rate Service. PACIFIC Exchange Rate Service. Retrieved May 16, 2013, from http://fx.sauder.ubc.ca/.