No matter how well you use technical analysis, you should still follow fundamental news.
Fundamental news can push the market against you and destroy any pattern and even reverse the trend.
Every professional trader uses an economic calendar for this purpose.
Using economic calendar data, you can predict when the market may start behaving unusual, and with proper analysis of the reports, you can determine future price movement.
Today we will talk about these reports, what they mean and what to do with them.
Employment data takes into account the total number of employees, both ordinary employees and self-employed citizens.
Employment data is important because it is an indicator of the current potential economic productivity of a country. The production of goods and services directly depends on how many people have the desire and the opportunity to work. If everyone is employed, it obviously means that the country is not capable of producing more, because it has no unused labor.
Employment is highly cyclical because when the demand for goods and services increases, companies tend to increase working hours rather than hire new workers. When the economy begins to deteriorate, companies prefer not to reduce working hours, but to get rid of additional workers, because layoffs allow you to save on pensions and other deductions, which are usually very expensive.
Economists track the addition of working hours and the number of overtime hours, defining them as positive changes for the employment sector. If these indicators begin to fall, it may mean a slowdown in the economy or a possible entry into the phase recession
Unemployment data takes into account the total number of people who can and want to work if they have the opportunity, but do not have a job.
Unemployment is highly cyclical for the same reasons as employment. They are opposite of each other.
These data are important because they are an indicator of excess labor, which economists tend to think of as wasted resources. Unemployment is also called unemployment.
There is a natural unemployment rate. Companies can only hire a certain number of people. At some point, the competition for employees becomes very high, because there are few vacancies. This, in turn, increases inflation, as hours worked and average hourly wages rise. People are starting to have more disposable income that they can spend within the economy on expensive items like cars and houses, which will cause inflation to rise.
The inflation rate is of great interest to us, as central banks pay close attention to it. Maintain inflation at the levels described in their financial policies and mandates is part of their job. Too high or too low inflation will force the central bank to intervene in the financial markets.
Personal Income and Disposable Income
These data take into account the total income of the population after deduction of State taxes.
They are important because they are the basis of consumption and personal savings within the economy. Personal consumption and spending account for between one-half and two-thirds of GDP in developed countries, making these indicators extremely important.
When people’s personal income grows, it is very likely that they will start spending more money within the economy. When there is a shortage of personal income, it is very unlikely that people will have the desire to spend what little money they have on goods that are not necessary for survival.
Economists pay attention to the steady growth of real personal income. If it is too fast, it will cause a sharp rise in inflation. If it’s too slow, it can lead to deflation, which is very bad for the economy (and for the positions of central bankers).
By the way, we will devote a separate article to inflation and deflation, since this is a theme very important. Fear not, we’ve got you covered!
Personal and Consumption Expenses, Private Consumption
In this type of data, total expenses are measured. In other words, how much each person consumes on average.
They are important because they are a key component of GDP alongside personal and disposable income, showing how much money each person is willing to spend on goods and services right now, both needed and wanted. Do not forget that spending is something very serious for developed countries.
Economists track the dynamics of changes in real interest rates to adjust their views on economics. For example, if expenses grow by 6% and prices increase by only 4%, then actual expenses have increased by only 2%.
Positive and negative changes in spending on durable goods (eg cars, washing machines, farm equipment) can be an early sign of changes in the economic situation. An increase in the number of purchases is considered a positive phenomenon, while a decrease in purchases is generally considered negative for the economy.