There has never been an easier time to access global economic data, but the tricky part is working out which data the market is watching, and why. Here, Chief Economist Dr Shane Oliver explains the indicators he’s looking at right now.
There has never been an easier time to access the breadth of economic data that professional investors use to help them make decisions, the tricky bit is working out what data the market is watching, and why.
“Obviously as chief economist, I spend a lot of time looking at data.”
“Right now, I’m looking at indicators of inflation in the US. To find this, I’m looking at the US Consumer Price Index and the core personal consumption deflator numbers that come out in the US each month,” says Shane Oliver, AMP Capital’s Chief Economist.
Economists pick and choose from a multitude of data points on any given day, week or month; however, what economic data is useful depends on where in the economic cycle you are and what approach you’re taking as an investor.
“Apart from the issues around trade, these numbers are going to be the key focus for the next six months or so, because of the stage in the cycle that the US economy is currently at,” Oliver notes.
“If you look at the US economy coming out of the global financial crisis, the big focus was whether the economic recovery was feeding through to jobs. Every first Friday of each month, all (economists’) eyes were glued on the non-farm payroll numbers.“
“Now it’s happened, and we’ve seen the non-farm jobs growth, so we are at the next stage,” Oliver notes.The market is now looking closely at the wage numbers that come out at the same time, and broader measures of inflation coming out of the US, he says.
“We’ve seen their recovery, we’ve seen the jobs, now we are looking at how much inflation we are going to get, because that will affect how much interest rates are going to rise in the US.”
“The point around all of this is that you need to know what matters to the market at a particular point in time.”
Another thing to bear in mind with economic data is that it is backward looking - it tells you something about where the economy was, whether it’s in Australia or globally, and often a few months ago, whereas the share-market tries to look forward, Oliver highlights.
Economic data can also be very volatile. In January, for example, in Australia, building approvals rose 17 per cent. If you looked at that you could think, fantastic, we’ve got a building or construction boom going on, but you have to bear in mind that the previous month it fell 20 per cent, he says.
So it’s important to put a trend line through it, and you really need to see this data in context, the context of what it was doing in the previous month, and relative to other indicators.
Economic data can be a very useful investment tool but you need to work out what the market is focussing on, where you are in the cycle and the context in which it applies.
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