BlogIndicators

Sentiment Indicators

The growth in the number and sheer diversity of sentiment indicators has been truly staggering in the last few years, with more and more of these apparently useless indicators, released in a daily torrent around the world. Quite how useful they are, nobody knows, but judging by the number that are released on a daily basis, someone, somewhere must find them useful! Personally I don’t, except for one or two of the more respected ones which I have outlined below, but you need to be aware of them nevertheless as they can, and do, move the markets. The general principle of all these indicators is much the same, and involves a survey amongst the target group which is then converted into an index figure. Normally the baseline is drawn at 5o, so that anything above this is considered to be an economy that is expanding ( or a positive view by the survey sample), and anything below the line is considered to be an economy that is shrinking (or a negative view from the sample). You will find these indicators covering every aspect of the market, from retail to manufacturing, and from consumers to purchasing managers. All are there in abundance, here are just two, but you can find many more on the daily economic calendar.

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Sentiment Indicators

  • Consumer Confidence Index

The CB Consumer Confidence Index is generally considered to be a leading indicator of consumer spending, and is based on a survey of around 5000 households in the US, which asks respondents to rate the relative level of current and future economic activity. Since American GDP is strongly influenced by consumer behaviour, indicators such as these tend to provide a good insight into consumer moods and trends, which can provide solid indications on future purchasing behaviour. As a general rule if the actual number is better than forecast, then this is generally good for the currency.

  • Purchasing Managers Index

The PMI provides an indication of the economic health of the manufacturing sector and is based on a monthly survey of purchasing managers. The data for the survey is collected in five key areas, including new orders, inventory levels, production, supplier deliveries, and finally the employment environment. The PMI is also referred to as the ISM index since it is the most widely followed publication of the Institute for Supply Management. The survey is based on a sample of 400, and is generally considered to be a leading indicator of the economy, with businesses reacting quickly to changing market conditions, with the underlying conclusion being that purchasing managers are in a strong position to gauge the economy first hand.

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