The monthly changes and the longer-term trend changes of economic indicators are able to influence the Interest rates on residential mortgages and US Treasury securities.
The rates on long-term debt instruments can be influenced by several kinds of variables, but in order to get the clues to the future direction of interest rates it is necessary to have an understanding of key economic indicators.
In most cases, on monthly basis economic reports are released.
Gross Domestic Product (GDP)
What is a GDP?
The gross domestic product (GDP) is the output of goods and services that are produced by labor in a property that is located in United States. The GDP is the most important economic indicator published.
Effects of GDP on Economy
If there is a larger-than-expected quarterly increase or increasing trend in the economy then it is considered inflationary. This thing urges the Fed to intervene and raise interest rates in order to slow growth.
Opposite to it when there is a negative growth or economic downturn then it is needed that the Fed should now lower interest rates to stimulate the economy and increase the growth rate.
Consumer Price Index (CPI)
What is a CPI?
The Consumer Price Index (CPI) is a measure of the average change over time in the prices that the urban consumers pay for a fixed market basket of consumer goods and services.
The CPI is considered to be the most important measure of inflation.In the CPI for all Items the Food and Energy prices are not included This CPI is also called as “Core CPI” or “Underlying CPI”. The main focus of Analysts is on the "core" CPI. The underlying rate of inflation is more accurately measured by Core CPI.
Effects of CPI on Economy
If there is a higher-than-expected CPI or increasing trend then it is considered as inflationary, and it can also cause bond prices to fall and it forces yields and interest rates to rise. Likewise, if there is a lower-than-expected CPI then due to this yields and interest rates will fall.
Producer Price Index (PPI)
What is a PPI?
The Producer Price Index (PPI) is a family of indexes by which the average change over time in the selling prices received by domestic producers of goods and services is measured. Price change is measured by PPI from the perspective of the seller.
This makes a contrast with other measures, such as the Consumer Price Index (CPI), by which price change is measured from the purchaser’s perspective. It is possible that the PPI can be volatile. The best thing is to use the six-month to one-year moving average.
Effects of PPI on Economy
If there is a higher-than-expected PPI then it is considered as inflationary, and this would forces the bond prices to fall and allows the yields and interest rates to rise. Opposite to it is the case when a lower-than-expected figure causes yields and interest rates to fall.
Employment Situation: Payroll Employment
What is Payroll Employment?
Employment is provided by the government’s employment report, hours and earnings estimates based on payroll records of business establishments. Together with the unemployment rate the payroll employment is the most significant indicator of current economic trends each month.
Payroll employment data is used by economists in order to predict other economic indicators such as the Personal Income, Industrial Production, and Index of Leading Economic Indicators.
Effects of Payroll Employment on Economy
If there is a higher-than-expected monthly increase or increasing trend then it is considered inflationary, and this can cause bond prices to fall and forces the yields and interest rates to rise. Opposite to it, a smaller-than-expected figure can make the yields and interest rates to fall.
Employment Situation: Unemployment Rate
What is Unemployment Rate?
The information on the unemployment rate and the number of unemployed persons by occupation, industry, duration of unemployment, and reason for unemployment is provided by the government’s employment report.
It is not like the payroll employment data, as it is a coincident indicator of economic activity and it changes direction simultaneously with the economy, the unemployment rate is a lagging indicator.
Effects of Unemployment Rate on Economy
If there is a lower-than-expected unemployment rate or declining trend then it is considered inflationary, and this thing can cause bond prices to fall and gives a rise to yields and interest rates.
Consumer Credit
What is Consumer Credit and what are its effects on Economy?
The function of Consumer credit data is to track debt levels for auto financing and commercial banking credit and it is considered to be a really very fair good indicator of consumer spending.
It is considered that the Consumer credit report generally have little impact on interest rates.
Housing Starts
What is Housing Starts and what are its effects on Economy?
One of the leading economic indicators is Housing starts. If there is a higher-than-expected increase in housing starts then this will trigger the economic growth and then it is considered inflationary, causes a fall in bond prices and a rise in yields and interest rates.
On the contrary, a decline or declining trend in housing activity causes the economy to slow down and this can push the economy into a recession, which causes yields and interest rates to fall.
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