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Glossary
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: Wednesday February 19, 2014
ADP Employment Change
The ADP National Employment Report® is a measure of nonfarm private employment, based on a subset of aggregated and anonymous payroll data that represents approximately 392,000 of ADP's 500,000 U.S. business clients and roughly 24 million employees working in all 19 of the major North American Industrial Classification (NAICS) private industrial sectors. The ADP National Employment Report was developed to help meet the need for additional timely and accurate estimates of short-term movements in the national labor market among economists, financial professionals, and government policy-makers. Because ADP pays 1-in-6 private sector employees in the United States every pay period across a broad range of industries, firm sizes, and geographies, it has a unique and significant perspective on the U.S. labor market.
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.
Consumer Confidence
Who: Conference Board
When: Last Tuesday of the month
What: The Conference Board measures the level of consumer confidence by conducting a monthly survey of 5000 households. The index consists of two issues - consumers' optimism of current conditions, which makes up 40%, and their expectations for the future, which makes up 60%.
Why: A reading of 100 is average. Higher readings are above average and lower readings are below average. Consumer Confidence has a direct correlation to consumer spending, which accounts for two thirds of the economy. Consumer Confidence also has some correlation with joblessness, inflation, and real income. Typically only changes of five points or more are considered significant with higher numbers pointing to greater consumer spending. There are other pressures that change consumer spending other than consumer confidence, inflation, joblessness, and regional business issues. Consumer Confidence is used to predict the direction of Consumer Spending but because of other influences, higher Confidence won't always lead to higher Spending.
Consumer Sentiment
Who: University of Michigan
When: Second Friday of the month (preliminary) and on the fourth Friday of the month (final).
What: The Michigan index has two main sub-indexes - consumers' sentiments for current conditions and consumers' expectations for future economic growth. Consumers' current sentiment of the economy is 40% of the reading and their future expectations make up the remaining 60%.
Why: Consumer sentiment is used to gain insight into possible future consumer spending. It is almost identical to consumer confidence but it has two readings per month, preliminary and final readings. The consumer expectations portion is used for the leading economic indicators index.
Core CPI
Who: Department of Labor
When: Approximately 13th day of each month for prior month
What: CPI measures the price of a predetermined set of goods and services purchased by urban consumers (80% of the population). CPI is the most widely cited inflation indicator and is used to calculate cost of living adjustments for government programs. CPI tracks prices of goods in several main categories including food and beverage, energy, housing, apparel, transportation, medical, education and others. Excluding food and energy, which are the more volatile components, gives what is commonly referred to as the "core rate."
Why: CPI is used to gauge changes in inflation and markets tend to be extremely sensitive to unexpected changes to the reported numbers. As inflation and expectations of future inflation rates change, the markets adjust interest rates to reflect those changes. The effect of these changes is seen across all markets, equities, bonds and mortgage backed securities. As a general rule, higher inflation is negative for bond markets.
Core PPI
Who: Bureau of Labor Statistics, Department of Labor
When: Middle of each month for prior month
What: PPI measures the change in prices, paid by producers, for a fixed basket of capital and consumer goods. It also measures the change in prices received by the manufacturing, mining, agriculture and electric utility industries. The "core" PPI excludes the often-volatile food and energy sectors and gives a clearer picture of the underlying inflation trend.
Why: Economists pay the most attention to the PPIs for finished goods, intermediate goods and crude goods. The PPIs measure inflation of prices on the producers' end and often that inflation gets passed onto the consumer and CPI. Inflationary pressures seen in PPI can help predict future pressures on consumer products' prices. As a general rule, higher inflation is negative for bond markets.
CPI
Who: Department of Labor
When: Approximately 13th day of each month for prior month
What: CPI measures the price of a predetermined set of goods and services purchased by urban consumers (80% of the population). CPI is the most widely cited inflation indicator and is used to calculate cost of living adjustments for government programs. CPI tracks prices of goods in several main categories including food and beverage, energy, housing, apparel, transportation, medical, education and others. Excluding food and energy, which are the more volatile components, gives what is commonly referred to as the "core rate."
Why: CPI is used to gauge changes in inflation and markets tend to be extremely sensitive to unexpected changes to the reported numbers. As inflation and expectations of future inflation rates change, the markets adjust interest rates to reflect those changes. The effect of these changes is seen across all markets, equities, bonds and mortgage backed securities. As a general rule, higher inflation is negative for bond markets.
Durable Orders
Who: Census Bureau
When: Approximately 26th of each month for month prior
What: Durable Goods Orders reports the number of new orders placed with domestic manufacturers for immediate and future delivery. Durable goods are items considered to be useful for at least three years (such as vehicles, large appliances and computers.)
Why: Provides insight into demand as well as business investment. Companies willing to spend more on equipment and other capital are possibly experiencing sustainable growth and could be planning on greater production capacity. The Durable Goods Orders report is a leading indicator for the manufacturing sector and has a big effect on the markets despite its volatility and large revisions. The non-defense category closely reflects the GDP category, Producer Durable Equipment, and is looked at more closely than the overall headline number.
Existing Home Sales
Who: National Association of Realtors Monthly
When: 25th of every month or the first business day thereafter
What: The Existing Home Sales Index reports the number of existing homes sold, expressed on an annual basis. The sales of existing homes accounts for about 85% to 90% of all houses sold and the total volume indicates housing demand.

Existing home sales are based on transaction closings. In contrast, new home sales are based on contracts signed.
Why: The report is a strong predictor of future national mortgage origination volume and for near term spending for housing-related items.
Factory Orders
Who: Commerce Department
When: First business day of each month for two months prior
What: Factory orders consist of the earlier announced durable goods report plus non-durable goods orders. Non-durable goods are food and tobacco, which both grow at fairly consistent monthly rates.
Why: Factory orders are watched for any revisions to durable goods orders, which can be very significant. The factory inventory piece of the report is also used to predict inventory levels for the quarterly GDP report.
FOMC Minutes
The FOMC minutes are released at 2:00 PM EST on pre-scheduled days. Minutes are prepared to provide the necessary information to Congress and the public on policies and actions of the FOMC. The summary description of economic and financial conditions contained in these minutes is based solely on the information that was available to the Committee at the time of the meeting. The minutes of each meeting of the Federal Open Market Committee are made available a few days after the next regularly scheduled meeting. For example, the minutes of the first meeting of the year are released a few days after the second meeting of the year.
Housing Starts
Who: Commerce Department
When: Monthly
What: The Housing Starts Index reports the number of residential homes construction has begun on during each month. It is a seasonally adjusted annualized rate of houses started, taken from a sample of 844 out of 17,000 permit sites. The monthly national average is broken down by region, and shows the breadth of change.
Why: The report may be used as an indicator of future national new home sales and mortgage origination volume. The housing market is very interest rate sensitive and is one of the first sectors to react to changes in interest rates. Typically, significant reaction to changes in interest rates signals interest rates are in a trough or peak. Any changes in the number of houses being built can have a significant effect on a number of other sectors.
Import Prices
Who: US Department of Labor
When: Around the 13th of the month
What: Indexes are compiled for the prices of goods that are bought in the United States but produced abroad. These prices indicate inflationary trends in internationally traded products.
Why: Changes in import and export prices are a valuable gauge of inflation. In addition, the data can directly impact the financial markets such as bonds and the dollar. The bond market is especially sensitive to the risk of importing inflation.
Industrial Production
Who: Federal Reserve Board
When: Around the 15th of each month
What: Officially named the Federal Reserve Statistical Release G.17. It measures the change in the production of the nation's factories, mines and utilities as well as a measure of their industrial capacity and the extent available resources among factories, utilities and mines are being used. The level of industrial production divided by the level of industrial capacity gives the capacity utilization rate. The manufacturing sector accounts for one quarter of the economy and the capacity utilization rate shows how much factory capacity is in use.
Why: Industrial Production is one of the major reports measuring economic activity. Stronger economic growth typically leads to higher inflation, so fixed income markets usual react negatively to stronger than expected economic growth.

In particular, capacity utilization is watched for fluctuations in production and additional inflationary pressures. The Fed watches this report for insight on whether or not production constraints will be causing increases to inflation and how they should adjust interest rates to accommodate for fluctuations in production. Changes in capacity utilization can be watched for insight into possible changes to producer prices. The report is highly watched and the markets are sensitive to its data.
ISM Index
Who: Institute for Supply Management
When: Around the first day of the month for month prior
What: The ISM Manufacturing Index, divided into manufacturing and non-manufacturing, is a national survey of purchasing managers which covers such indicators as orders, production, employment, inventories, delivery times, prices, export orders, and import orders. The ISM provides a composite diffusion index of national manufacturing conditions. The total index is calculated based on a weighted average of the following five sub-indexes: new orders (30%), production (25%), employment (20%), deliveries (15%) and inventories (10%). Readings above 50% indicate an expanding factory sector.
Why: Manufacturing is an important sector of the economy and the ISM index is one of the two primary national measures (the Chicago PMI is the other). 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.
ISM Services Index
Who: Institute for Supply Management
When: Two days after the ISM Index
What: The ISM Services Index is a national survey of purchasing managers which covers such indicators as orders, production, employment, inventories, delivery times, prices, export orders, and import orders. The ISM provides a composite diffusion index of national service sector condition. The total index is calculated based on a weighted average of the following five sub-indexes: new orders (30%), production (25%), employment (20%), deliveries (15%) and inventories (10%). Readings above 50% indicate an expanding service sector.
Why: Looked at as a good indicator for future inflationary pressures and can have a big effect on the markets. The Federal Reserve watches the report for signs of inflation among the different reporting sectors and makes adjustments to interest rates to help combat unwanted inflation. Changes in prices paid by service companies can be indicative of accelerating or decelerating inflation and future service activity can be predicted by changes in new orders.
Jobless Claims
Who: The Employment and Training Administration of the Department of Labor
When: Each Thursday, for week ending the prior Saturday
What: Initial jobless claims measure the number of first time filings for state jobless benefits. Claims are quite volatile from week to week; therefore many analysts track a four-week moving average to get a better sense of the underlying trend. The report also contains two other statistics- the number of people receiving state benefits and the insured unemployment rate.
Why: The four-week moving average and continuing claims are watched more closely for changes. The labor market is considered to be improving when the four-week moving average goes below 400,000. If unemployment goes low enough it can put wage pressure on the economy and can cause increases in interest rates.
JOLTS
Who: Bureau of Labor Statistics
When: Around the 10th of each month for the data from two months ago
What: The Job Openings and Labor Turnover Survey (JOLTS) is a monthly survey developed to address the need for data on job openings, hires, and separations. The headline number measures the number of job openings each month.

JOLTS collects data on Total Employment, Job Openings, Hires, Quits, Layoffs & Discharges, and Other Separations.
Why: There are many factors, some positive and some negative, which affect the number of job openings. That said, a higher number is usually consistent with a stronger economy. Combined with the data from other reports, the JOLTS report helps to provide a more well rounded indication of labor market conditions.
Leading Indicators
Who: Commerce Department
When: Monthly for the month prior
What: The Leading Indicators report is composed of ten indicators (such as jobless claims, hours worked, interest rate spread, and building permits) designed to forecast the strength of the economy six to nine months into the future. The ten indicators are picked from different parts of the economy and are chosen because of their relevancy and accuracy. They are each given equal weight when applied to the composite index.
Why: The LEI can predict peaks and troughs in the economy but because many of the indicators are released individually before the LEI composite index is released, market rarely watch the report very closely.
NAHB Housing
Who: National Association of Home Builders and Wells Fargo
When: Around the 18th of the month
What: Derived from a monthly survey that NAHB has been conducting for 25 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as ‽good,” ‽fair” or ‽poor.” The survey also asks builders to rate traffic of prospective buyers as ‽high to very high,” ‽average” or ‽low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
Why: This report provides an indication of the supply and the demand for new homes during the current month. It also reveals expectations for future sales.
New Home Sales
Who: Commerce Board
When: Monthly
What: The New Home Sales index reports the number of new, privately owned single-family houses sold for the month.

New home sales are based on contracts signed. In contrast, existing home sales are based on transaction closings.
Why: The report is used with the existing home sales report to predict trends in the housing markets. New home sales can also be used to gauge trends in other economic sectors such as those goods and services used by homeowners. Some changes in the new home sales number can be attributed to weather and seasonal holidays.
Nonfarm Payrolls
Who: Bureau of Labor Statistics
When: First Friday of the month for prior month
What: Non-Farm Payrolls is estimated based on a survey of larger businesses measuring the number of paid employees working part-time or full-time in businesses or for the government.
Why: The Non-Farm Payroll data is the top number of the Employment Report, one of the most highly anticipated pieces of economic data. The headline figure is often a major market mover with the labor market a strong predictor of the strength of the economy. The Unemployment Rate is obtained from a different data sample, and together the two reports provide the most comprehensive picture of the labor market. The monthly reports are, however, very volatile and subject to large revisions in future releases. Long term trends in the report's data are a better gauge for the true state of the labor market. Strength in the labor market implies a strong economy and is usually negative for bond markets.
NY Empire State Index
Who: Federal Reserve Bank of New York
When: Monthly
What: The survey is from a group of manufacturers across New York in a variety of industries. The participants respond to a questionnaire and report the change of indicators from the previous month. Respondents also state the likely direction of the same indicators for the next six months ahead.
Why: Manufacturing is a major sector and markets look to this report for some guidance as to how well this sector is doing. Clues on future commodity prices and inflationary pressures can be seen from the results of the survey. The Fed watches for inflation pressures on the manufacturing sector. This regional report gives an earlier look than the two more closely watched national reports, ISM Manufacturing and Chicago PMI.

Readings below zero in the index indicate a contraction in the manufacturing sector, while readings above zero indicate an expansion.
Pending Home Sales Index
Who: National Association of Realtors
When: Around the 26th of every month
What: This new index measures housing contract activity. It is based on signed real estate contracts (rather than closings) for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes.
Why: It is designed to be a leading indicator of housing activity. Greater housing sector activity indicates a stronger economy, which is generally negative for MBS markets.
Philadelphia Fed Index
Who: Federal Reserve Bank of Philadelphia
When: Middle of the month
What: The Business Outlook Survey is a monthly survey of manufacturers located around the states of Pennsylvania, New Jersey and Delaware. Companies surveyed indicate the direction of change in their overall business activity and in the various measures of activity at their plants. They are asked questions regarding employment, working hours, new and unfilled orders, shipments inventories, delivery times, prices paid, and prices received. The survey has been conducted each month since May 1968. The index signals expansion when it is above zero and contraction when below.
Why: The Philadelphia Fed Index is considered to be a good indicator of changes in everything from employment, general prices, and conditions within the manufacturing industry. Manufacturing is considered to be a precursor to future economic conditions and it lays the groundwork toward economic recovery. For example, in a poor economy if manufacturing starts to pick up there is an expectation that the economy will soon follow behind.

This index isn't a big market mover, but the results found in the survey can indicate what to expect from the Purchasing Managers' Index (which comes out a few days later and covers the entire U.S.).
PPI
Who: Bureau of Labor Statistics, Department of Labor
When: Middle of each month for prior month
What: PPI measures the change in prices, paid by producers, for a fixed basket of capital and consumer goods. It also measures the change in prices received by the manufacturing, mining, agriculture and electric utility industries. The "core" PPI excludes the often-volatile food and energy sectors and gives a clearer picture of the underlying inflation trend.
Why: Economists pay the most attention to the PPIs for finished goods, intermediate goods and crude goods. The PPIs measure inflation of prices on the producers' end and often that inflation gets passed onto the consumer and CPI. Inflationary pressures seen in PPI can help predict future pressures on consumer products' prices. As a general rule, higher inflation is negative for bond markets.
Preliminary GDP
Who: Commerce Department
When: During the second month of each quarter
What: GDP (Gross Domestic Product) is a measure of the total production and consumption of goods and services in the US. GDP has two complementary measures: one based on income and the other on expenditures. The two measures should be equal but the problems with the data collection have left some discrepancies. A deflator is used to convert current prices into a constant-dollar GDP figure. The GDP report gives a complete picture of the state of the economy as well as estimates for future output based on supply and demand.

Advance GDP is the initial reading each quarter. As more data is collected, the Preliminary GDP release reflects the first revision. The Final GDP report for the prior quarter is released near the end of the current quarter.
Why: GDP is a significant report for several reasons. It is the most encompassing picture of economic activity and when paired with the employment report gives a picture of productivity growth. The data is used to define business cycle peaks and troughs. Higher GDP points to accelerated inflation while lower GDP indicates a weak economy.
Productivity
Who: Bureau of Labor Statistics
When: One month after each quarter
What: Productivity is defined as the ratio of output to input. Simply put it is how efficient labor is at producing the economy's goods and services. Unit Labor costs reflect labor costs of producing each unit of output and provide information on emerging wage pressures.
Why: Higher Productivity allows firms to produce more with an equal amount of labor. If fewer workers are needed, the inflation pressure on wages will be lower. The Productivity report is not a timely report as it is only released quarterly and most of the information in the report has already been released in other reports. The report does provide the best overall picture of the economy's efficiency.
Retail Sales
Who: The Census Bureau of the Department of Commerce
When: Around the 13th of the month for one month prior
What: The Retail Sales Index measures the total receipts of retail and food sales. Retail sales include durable and non-durable merchandise sold and services and taxes incidental to the sale of merchandise. Sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.
Why: It is the timeliest indicator of broad consumer spending and is adjusted for seasonal variations and holidays. Big revisions to reports can be made even to old reports from several months past. Fluctuations in sales figures can occur because of price changes and not due to changes in consumer demand. Strength in Retail Sales implies a strong economy and is usually negative for bond markets.
Retail Sales ex-Auto
Who: The Census Bureau of the Department of Commerce
When: Around the 13th of the month for one month prior
What: The Retail Sales Index measures the total receipts of retail and food sales. Retail sales include durable and non-durable merchandise sold and services and taxes incidental to the sale of merchandise. Sales are often viewed ex-autos, as auto sales can move sharply from month-to-month. It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.
Why: It is the most timely indicator of broad consumer spending and is adjusted for seasonal variations and holidays. Big revisions to reports can be made even to old reports from several months past. Fluctuations in sales figures can occur because of price changes and not due to changes in consumer demand.
Trade Balance
Who: Department of Commerce
When: Around the 20th of the month for data two months prior
What: The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may slow domestic growth. Exports boost domestic production.
Why: The volatility in the monthly trade balance can play an important role in forecasts of GDP. Net exports are a relatively volatile component of GDP, and the trade report provides early clues to the net export performance each quarter. There are many complex links between the Trade Balance and MBS markets, and some work in opposite directions, so the net effect is difficult to predict. For this reason, the data rarely produces much movement in MBS prices.
Treasury Auction 10yr Notes
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Treasury Auction 2yr Notes
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Treasury Auction 30yr Bond
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Treasury Auction 3yr Notes
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Treasury Auction 5yr Notes
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Treasury Auction 7yr Notes
The Treasury conducts auctions of many maturities to raise money to fund the deficit. Strong demand often helps MBS prices, while weak demand may push MBS prices lower.
Unemployment Rate
Who: Bureau of Labor Statistics
When: First Friday of each month
What: Unemployment Rate is the percentage of the civilian labor force looking for employment but unable to find work.
Why: see Employment Report