Fundamental analysis

The USA - key indicators


Traders around the world follow the development of economic conditions in the United States in the closest details

Rule of thumb

The main sectors of the economy is industry, second in the world and accounting for 22% of the GDP, with technology, petroleum and steel as the leading industries.

Services account for 77% of the GDP, with finance and banking as the leading sectors.

The impact of agriculture on the GDP is minimal, as it accounts for around 1% of the GDP, with wheat, corn and beef as the main products.
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  • The USA - secondary indicators

The United States is the biggest economy in the world in terms of the GDP value, with China and Japan in the second and third places respectively. It is also one of the largest countries with a market-oriented economy, both in terms of geography and demographic conditions.

The USA - economy


One of the main characteristics, in the case of this country, is the importance of the individual consumers as the driving factor of the United States and global economy. Populated by approx. 309 million people, with approx. 47’000 USD nominal GDP value per capita, the United States have immense influence on the economic situation in Europe and Asia and other regions.

It is considered to be the most technologically advanced economy in the world, with significant emphasis placed on the research and development, both in public and private sectors. In the United States companies and individuals have probably the greatest flexibility in terms of new product development, human resources management and what is very important from an economical point of view, possibilities to obtain capital.

It is common in the United States that the priorities, in respect to the usage of national resources, are shifted in accordance with the requirements of the actual foreign policy. Frequent conflicts on the international stage, that involve the USA, engage the military sector of the industry, as well as increasing oil consumption. The typical result is rising oil prices and the USA, even though it is the third largest oil producer in the world, is the number one world oil importer.

Because the United States is a country with significant output in the world production, and the US dollar participates in approx. 85% of international currency transactions, many economical indicators are followed by traders and investors.

 

Gross Domestic Product (GDP)



The GDP of the United States accounts for one of the most popular fundamental indicators followed by traders around the world

Rule of thumb

GDP is one of the most closely followed macroeconomic indicators of the economic condition of a country. Higher GDP usually indicates the improvement of an economical situation.
GDP is the total value of all goods and services produced within a country’s border during a period of time. The importance of this indicator is that it considers all goods and services produced in the country independently, if they are produced by foreigners or American citizens and/or companies.
It therefore excludes the production of American companies in other countries.

GDP may be presented as nominal values (e.g. USD) or as GDP dynamics (in %). It presents a quick overview of the economy within a country.

GDP is a very popular indicator of the economic activity in a country.Although it is very important, one should take into consideration other economic indicators when analysing GDP.

Generally, a higher GDP indicates a growth in economic activity, which may result from a healthy economy but, on the other hand, depending on the level of the GDP growth, it may also contribute to inflationary pressure.
Usually an observable GDP growth provides an appreciation of the country’s currency.

 

PPI (Producer Price Index)



PPI may be understood as the inflation level from the point of view of the manufacturers from the United States

Rule of thumb

The PPI target is the output of U.S. producers, therefore imports, sales and excise taxes are excluded

It focuses on the revenue received by a producer of a specific product
The PPI indicator measures change in the selling prices received by domestic producers for their output. The target set for goods and services included in the PPI is the entire marketed output of US producers.

The set includes both goods and services purchased by producers as input to their operations. The price collected for the PPI is the revenue received by its producer, and excludes sales and excise taxes as they do not represent revenue to the producer. It is important to mention that goods and services also purchased by consumers directly from the service producer or indirectly from a retailer are included in this economical indicator.

The CPI, in contrast to the PPI, includes sales, excise taxes and imports, because they are necessary expenditures by the consumer of the item. The main difference between PPI and CPI is that the former is used to adjust real growth in output, while the latter is used to adjust income and expenditure streams for changes in the cost of living.

PPI is a similar economic indicator in terms of interpretation as the CPI, with the main purpose of measuring inflation. Generally, a rise in inflation reflects a decline in the purchase power of a country’s currency, which may lead to depreciation of that currency.

On the other hand, a rise in a country’s inflation may also lead to the rise of the nominal interest rates, which may attract the interest of investors for that country’s currency thus, leading to appreciation.

Periodicity of publication

First published data for a particular month, as well as the revisions from the previous 4 months (final figures), are available the following month, usually during the second full week at 8.30am (eastern time).

 

Non-Farm Payrolls



"Non-Farm Payrolls may be considered the fundamental indicator that provides the most volatility on the foreign exchange market"

Each month the current employment statistics (CES) programme of the Bureau of Labour Statistics surveys about 140,000 nonagricultural business entities, including government agencies. It provides data related with employment, hours, and earnings of workers on non-farm payrolls.

This report is important not only for employees and employers, as it gives a baseline for wage negotiations, but for economists providing grounds for public policy analysis, industry studies and other uses. This report is closely followed by traders, investors and analysts.

The release of the non-farm payroll data is one of the events that bring the highest volatility to the financial market.

The formula of the report excludes the agricultural jobs. However, as agriculture relates to only 1%

of the US GDP, the report may be considered to reflect the overall shape of the whole employment market. An increase in non-farm payrolls may indicate an improvement in the situation of companies, and so the financial level of individuals, that would have a direct effect on the financial market (stock market, banking, etc.) and may lead to the appreciation of the US dollar.

On the other hand, a healthy condition of the employment market positively influences the spending power of individual households, and consequently the level of consumption of the goods and services provided by companies and investments of US citizens in instruments of the financial market, which may lead to a rise in price of such assets.

Periodicity of publication

The Bureau of Labour Statistics releases data usually on the first Friday of each month, related to the previous month.

 

Trade Balance



Trade Balance provides information on the level of imports and exports

The purpose of this indicator is to provide information on the amount related to goods and estimated services traded between The United States and its international partners.

One thing to bear in mind is the lower bound value of 2,500 USD for goods, including costs related with export like freight, shipped either by individuals or organisations. Goods with values below this amount are not taken into consideration in the Foreign Trade report.

This data is widely used by investors for domestic and overseas market analysis and general business planning.

Federal agencies and other entities use the foreign trade data for economic, financial, and trade policy analysis. Increasing imbalance between the value of goods imported and exported may give rise to concerns in respect to the general shape of the US economy, and have a negative impact on the US dollar.

Periodicity of publication

Data on the foreign trade is reported on a monthly basis, 40 to 45 days after the reference period, by the United States Census Bureau.

FOMC Interest Rates decision

"The FOMC interest rates decision is one the most important factors that influence the US economyPopularly known as being issued by the FED, interest rates decision are more

precisely issued by the Federal Open Market Committee (responsible for open market operations) eight times a year just after its meetings.

The FOMC consists of twelve members, seven of which are members of the Board of Governors of the Federal Reserve System, the president of the Federal Bank of New York and four of the remaining eleven Reserve Bank presidents - which rotate on a yearly basis.

The main interest rates settled by the FOMC are responsible for driving inflation in accordance with the monetary policy adopted by the FED. One of the rates in mind is the overnight borrowing rate and the Federal Reserve’s Cash Rate Target (FRCRT). The latter affects interest rates for consumer loans, mortgages, bonds or others.

The actual changes to the interest rates have a direct impact on the US dollar. However, the market expectation, in respect to future monetary policy, plays a part that is even more significant for the market. In such circumstances, any indirect information that provides hints to future FED monetary policy, and thus influences the market expectations in respect to the interest rates, may have a significant impact on the US currency.

Typically, an increase of the interest rates, or expectations of such an increase, provide fundamental support to the US dollar. The lower interest rates may have a negative impact on the US currency.

Periodicity of publication

Statements and interest rates decisions are issued eight times a year according to schedules established by the FED"