Why I Only Cover Certain Economic Reports
When I initially began reporting on Canadian and US economic news, I found myself overwhelmed by the sheer volume of inflation-related data. To streamline my coverage, I made the strategic decision to concentrate solely on the key indicators scrutinized by the Bank of Canada (BoC) and the US Federal Reserve (Fed). For additional information into these central banks, please refer to the “Central Banks” article.
The Fed oversees the management of the world’s largest economy, while the BoC is entrusted with overseeing Canada’s economy, the ninth largest globally. Both institutions share the common objective of maintaining inflation at a steady 2%. Achieving this target hinges largely on their ability to adjust their respective benchmark interest rate. The decision-making process for interest rates takes into account a variety of factors, including:
- The current state of the economy (like inflation, economic growth, and employment)
- Financial market conditions
- Global economic trends
The essence of their task lies in achieving a delicate balance between encouraging economic growth and preventing runaway inflation. Although central banks like the BoC and the Fed deal with this data on a daily basis, as investors, we only have access to it on a monthly basis. Despite distinct reports for each country, they often share similar names. Here is a brief explanation of the data that central banks monitor, as well as the monthly reports that furnish this information.
To gauge inflation, central banks rely on two critical indicators: the Consumer Price Index (CPI) and the Core Personal Consumption Expenditures Price Index (Core PCE). The CPI tracks fluctuations in prices for various everyday items over time. The Core PCE operates similarly to the CPI, focusing on prices of goods and services, but omits volatile food and energy prices. This provides a clearer insight into underlying inflation patterns. An upward trend in the CPI or Core PCE suggests rising costs, which might necessitate higher interest rates to curb inflation and to encourage responsible spending and borrowing, thereby stabilizing prices.
Gross Domestic Product (GDP) is the key metric employed to gauge economic growth. It measures the overall economic activity within a country. Rapid economic expansion could trigger inflation, prompting central banks to consider raising rates in order to temper borrowing and spending.
Both central banks closely monitor employment data. In Canada, the BoC relies on various reports, with the Labour Force Survey (LFS) and the Job Vacancy and Wage Survey (JVWS) being primary sources. The LFS offers insights into employment, unemployment, and the broader labor market landscape. The JVWS sheds light on job vacancies and wage trends, aiding the BoC in understanding labor demand and market health.
Similarly, in the US, the Fed monitors various employment reports, including the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) and the Bureau of Labor Statistics’ Employment Situation Report (ESR). JOLTS provides data on job openings, hires, quits, and layoffs, providing a comprehensive view of labour market dynamics. The ESR encompasses average hourly earnings, average weekly earnings, and offers a comprehensive snapshot of employment and wage trends in the US.
Both central banks also track several market sentiment indices. In the US, these include the VIX, CCI, and the CSI. The VIX measures market volatility, the CCI assesses investor confidence, and the CSI gauges investor sentiment. For further clarification on these, kindly refer to the respective links.
In Canada, the equivalents are the “VIXC” (CBOE Volatility Index for Canadian Stocks), which gauges market expectations of near-term volatility in Canadian stocks. While the term “CCI” is not commonly used in Canada, similar insights can be gathered from sources such as the “Canadian Confidence Index” released by Bloomberg/Nanos. Additionally, the Conference Board of Canada releases the “Index of Consumer Confidence,” reflecting consumer sentiment based on diverse economic factors and surveys.
Obviously, there are other reports and data they both follow as well as other factors such as global financial markets, and global economic conditions. None of these factors are taken in isolation. The BoC and the Fed look at the bigger picture to make informed decisions that support the overall health of their respective economies. It’s like putting together a puzzle with lots of different pieces!
Going forward, I will cover the economic reports and sentiment indexes that I have already mentioned. The reports are from government agencies while the sentiment indexes are provided by independent third parties. The reports and sentiment indexes are published monthly, while the volatility indexes are updated daily. I may throw in other information occasionally if it impacts the markets.
Navigating the world of investing can feel overwhelming (kind of like being on a paddleboard in the fog, with no idea where you are going 😊) , especially when it comes to sifting through financial and economic information. You must figure out what information truly matters to you and what’s merely noise.
If you are someone who thrives on data and analysis, you might feel that the more information, the better (and there is certainly no shortage of data available). On the flip side, some find financial details monotonous and boring – they would rather not bother with what might seem like a tsunami of data. Most individuals, however, fall somewhere in between these two viewpoints.
The key takeaway here is to determine what financial and economic information is relevant to you. This will help you avoid the sensation of being inundated by a constant stream of information.
In my case, I have found that this handful of basic economic indicators provides valuable insights into the Canadian and American economies. This understanding proves essential for making sense of market shifts and comprehending why central banks make the decisions they do. For me, the surplus of other economic data is just background noise. Afterall, I am only worried about my three portfolios, not the economy of a nation. 😊
Let me know what economic data you follow in the comment section below.