The comprehensive MBSQuoteline Glossary gives you simple definitions for tough market issues and economic jargon. Impress your clients with insight into economic reports, including where they come from, what they are, when they come out and, most importantly, why they matter. What is PCE and why does the Fed watch it so closely? What is the "roll" and how does it affect pricing? What are indirect bidders in a Treasury auction and how do they affect interest rates? Learn answers to these questions and more.
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Demo based on market events from: Friday May 2, 2014
Chicago PMI
Who: Chicago arm of the National Association of Purchasing Managers
When: Last day of the month for the current month
What: The Chicago PMI is measured by new orders, production, supplier deliveries, inventories and employment; asking for positive, negative or unchanged readings of each. A reading above 50% generally indicates that the manufacturing sector is expanding, and below 50% signifies contraction. The Chicago Purchasing Managers Index is measured like the ISM (Institute for Supply Management) and has a 91% correlation with the national ISM.
Why: Manufacturing is an important sector of the economy and the Chicago PMI is one of the two primary national measures (the ISM is the other). It is looked at as a good indicator for future inflationary pressures and can have a big effect on the markets. Changes in prices paid by manufacturers can be indicative of accelerating or decelerating inflation and future manufacturing activity can be predicted by changes in new orders. Strength in the manufacturing sector may be a sign of a strong economy and is usually negative for bond markets.
Construction Spending
Who: Department of Commerce, Census Bureau
When: First business day of the month for two months prior
What: The report measures the total amount of spending in the U.S. on all types of construction. It is the most comprehensive indicator of national construction activity. There are several building types reported, residential/non-residential, private/public and other (roads and utility lines). Trends in the report lasting three months or more show significance, rather than the actual monthly analysis due to the fact that a building is only reported once it is completed and tends to be a lagging indicator.
Why: Used to estimate the construction contribution to GDP. Construction permits issuances, also available from the Census Bureau, are a more useful leading indicator of activity.