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                                               ISM Non-Manufacturing Index

Since the index is based on data collected from purchasing managers and supply executives, it is a leading indicator of U.S. economic health. A reading above 50 signifies growth in the non-manufacturing sector, and is seen as positive (or bullish) for the USD, whereas a figure below 50 is seen as negative (or bearish) for the USD. Interestingly, the ISM Non-Manufacturing Index has less market impact compared to the ISM Manufacturing report because non-manufacturing data tends to be more cyclical and predictable.

Historical Overview of ISM Non-Manufacturing Index:

Understanding ISM Non-Manufacturing Index:

The Non-Manufacturing Index released by the Institute for Supply Management (ISM) is a gauge of business conditions in U.S. non-manufacturing industries. The report is based on data compiled from a survey of more than 375 purchasing and supply executives in over 62 different non-manufacturing industries across the United States, including agriculture, construction, mining, communications, transportation, wholesale trade and retail trade. A composite diffusion index is created based on the data from these surveys. The index has four equally weighted components: business activity, new orders, employment, and supplier deliveries. A reading above 50 indicates an expansion in the non-manufacturing sector, and a figure below 50 indicates that it is generally declining. While the ISM manufacturing index has a long history that dates to the 1940s, the non-manufacturing report is relatively new, and is being published since June 1998.

Comparison between ISM Manufacturing and Non-Manufacturing Indexes:

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                                      US CPI DataMarket Impact Scenarios

If US inflation comes in higher than expected then all else being equal this will be bullish for the US Dollar.  Higher than expected inflation data lowers the probability that the Federal Reserve will try to decrease interest rates further by increasing monetary stimulus.  If US inflation data comes in lower than expected this is bearish for the US Dollar as it increases the likelihood that the Fed will increase or extend monetary stimulus.  For more on how currencies react to interest rate and inflation expectations go here.

US GDP Growth Rate Historical Chart:

Market Impact Scenarios:

Better than expected GDP figures are generally bullish for a given currency, while negative figures are bearish. GDP numbers measure how fast or slow the domestic economy is growing. Strong US GDP figures will indicate higher economic activity in the country, attracting foreign investors to both the US stock market and the Treasury bond market. This increases the demand for US dollars, and correspondingly, the value of the dollar relative to other foreign currencies.

Understanding GDP:

Gross domestic product is the broadest measure of economic activity in a country, and is the total market value of all goods and services produced in the country during a given period of time minus the cost of goods and services used up in the process of production. Gross Domestic Product is calculated as:

          GDP = C + I + G + (EX – IM)
where
C = private consumption
I = private investment
G = government expenditure
EX = exports of goods and services
IM = imports of goods and services

An economy is generally considered to be in recession if it has two successive quarters of contraction.

The US GDP figures are released quarterly, about 60 days after the quarter ends, and are reported in an annualized format.

There are three versions of GDP released a month apart – advance, preliminary, and final. The Advance release is the earliest and tends to move markets the most upon release.

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Market Impact Scenarios:

ISM Manufacturing Index is a leading indicator of the U.S. economic health. Despite the manufacturing sector accounting for a relatively small portion of the U.S. GDP, traders attach a lot of importance to this index because fluctuations in manufacturing tend to cause maximum changes in final GDP numbers. A reading above 50 signifies growth in the manufacturing sector, and is seen as positive (or bullish) for the USD, whereas a figure below 50 is seen as negative (or bearish) for the USD.

ISM Manufacturing Index Definition:

The ISM Manufacturing Index is compiled from a survey of about 400 purchasing managers and supply executives, who are asked to rate the relative level of various business conditions like employment, production, prices, new orders, supplier deliveries, and inventories. For each sub-category of the survey (production, employment, new orders etc), the index is calculated by obtaining the net difference between the percentage of responses in the positive economic direction and the percentage of responses in the negative economic direction. The final figure is the aggregate of the results for all the sub-categories, and is expressed as a diffusion index. It is generally accepted that a reading above 50 indicates an expansion in manufacturing, and any figure above 43 but less than 50 denotes that the U.S. economy is still growing even though manufacturing is contracting. A level below 43 signifies that the economy is in recession.

- See more at: http://www.forexnews.com/blog/2013/07/01/ism-manufacturing-index/#sthash.QkaWAG41.dpuf

Market Impact Scenarios:

Traders eagerly watch out for data on non-farm payrolls and unemployment rate, as the number of unemployed people is an important sign of the overall economic health of the country. Since the U.S. employment report is released shortly after the month ends, the data is considered to be timely. Job creation is a leading indicator of consumer spending because more the income-earning workers, more will be the consumption expenditure. Any worsening of the employment situation will lead to lower incomes, decreased consumption and a drop in economic activity. Thus, a rise in new non-farm payrolls is generally seen as positive (or bullish) for the USD, while a decline in the reading is seen as negative (or bearish) for the currency. Similarly, a low unemployment rate will indicate higher economic activity in the country, increasing the demand for the USD.

Understanding Non Farm Payrolls and the US Unemployment Rate:

The employment report by the US Department of Labor is based on two separate surveys, which help calculate important labor market indicators like unemployment rate, non-farm payrolls, average workweek, and average hourly earnings. Non-farm payroll is the most closely watched figure in the report. It measures the change in the number of employed people in all non-agricultural businesses during the previous month. The unemployment rate is the number of unemployed workers divided by the total labor force. The average workweek reveals the number of hours worked in the non-farm sector, while average hourly earnings denotes the basic hourly rate for major industries as indicated in non-farm payrolls.

- See more at: http://www.forexnews.com/blog/2013/07/05/non-farm-payrolls-and-us-unemployment-rate/#sthash.HmXLUZPz.dpuf

US Producer Price Index

Previous Reading: 0.5% (MoM), 1.7% (YoY)

Analysts Expect: 0.5% (MoM), 2.1% (YoY)

Release Date & Time: Friday, July 12, 12:30 GMT (Released monthly, about 15 days after the reporting month ends.)

Source of Report: Bureau of Labor Statistics, U.S. Department of Labor

Release URL:  http://www.bls.gov/news.release/ppi.nr0.htm

Upcoming Release Commentary:

U.S. producer price index gained 0.5 percent in May after falling 0.7 percent in the prior month. The core rate, which excludes volatile items like food and energy, increased 0.1 percent, to record the seventh straight monthly gain. Food prices rebounded from the 0.8 percent decline in April, gaining 0.6 percent. Energy prices climbed 1.3 percent, following a drop of 2.5 percent. Gasoline prices rose 1.5 percent after dipping 6.0 percent in April.

For June, analysts expect a 0.5 percent increase in the top line producer price index, while core PPI should report a modest 0.1 percent increase. Gasoline and food prices likely witnessed a small gain last month. Inflationary pressures remain muted, and the moderate domestic demand makes it extremely difficult for producers to pass on the increased costs to consumers.

- See more at: http://www.forexnews.com/blog/2013/07/11/producer-price-index/#sthash.7cCmDGwV.dpuf

How it impacts the U.S. Dollar:

Since Producer Price Index measures prices at the producer level before they are passed on to the consumers, it is an early indicator of inflation. A rising PPI signals an increase in inflationary pressures, which could force the Federal Reserve to raise interest rates. Similarly, a declining PPI is indicative of falling prices, and may suggest an economic slowdown, which could compel the Fed to slash rates. Since interest rates are the primary factor in currency valuation, a high PPI reading is generally seen as positive (or bullish) for the USD, whereas a low reading is seen as negative (or bearish) for the currency. Due to sharp volatility in food and energy prices, which constitute nearly one-quarter of the PPI, analysts and economists prefer monitoring the PPI excluding food and energy, also called the “core” PPI, to get a better picture of the prevailing trend.

Understanding Producer Price Index:

Producer Price Index is a family of indexes that measure the change in the price of finished goods and services sold by producers. The headline figure is expressed as the percentage change in producer price from the prior period. The Producer Price Index comes in three variants:

  PPI Commodity Index (crude): Represents the average monthly price change for commodities such as crude oil, coal and steel.
PPI Stage of Processing Index (intermediate): Measures price change in goods that have been manufactured at some level but will be sold to further manufacturers to create the finished good. Examples include lumber, steel and cotton.
PPI Industry Index (finished): Covers finished products bought from producers by businesses to sell to consumers or to use for capital equipment.The finished goods PPI is the source of the core PPI.
The Producer Price Index is considered a major precursor of both consumer price inflation and profits, and is very useful for analyzing potential sales and earnings trends.

- See more at: http://www.forexnews.com/blog/2013/07/11/producer-price-index/#sthash.7cCmDGwV.dpuf

7.5% Consensus

7.6% Previous

The Unemployment Rate released by the US Department of Labor is the number of unemployed workers divided by the total civilian labor force. If the rate is up, it indicates a lack of expansion within the US economy. Therefore, a decrease of the figure is seen as positive (or bullish) for the USD, while an increase is seen as negative (or bearish).