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Decoding the Script

Decoding the Script. Page 2. Line 1: Manager of the SOMA – Senior official from NY Fed; reports on domestic and foreign exchange markets; always at FOMC meetings

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Decoding the Script

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  1. Decoding the Script

  2. Page 2 • Line 1: Manager of the SOMA – Senior official from NY Fed; reports on domestic and foreign exchange markets; always at FOMC meetings • Line 3: Green Book - National data are collected, reported, and analyzed in the Green Book, simulations of the impacts of different policy scenarios a represented in the Blue Book, and regional economic conditions are described in the Beige Book. The Green Book and Blue Book are prepared by staff members at the Board of Governors and contain the Board staff’s view of recent monetary and financial developments. Prior to each FOMC meeting, each Reserve Bank prepares a Beige Book that assesses its regions economic conditions.

  3. Page 2 • Line 5: Consumer spending - Purchase of goods and services by U.S. individuals, accounting for about 2/3 of the GDP. This number includes products of both domestic and foreign origin. • Line 5 - The dollar value of new construction activity on residential, nonresidential, and public projects. Construction spending has a direct bearing on stocks, bonds and commodities because it is a part of the economy that is affected by interest rates, business cash flow and even federal fiscal policy. In a more specific sense, trends in the construction data carry valuable clues for the stocks of home builders and large-scale construction contractors.

  4. Page 2 • Line 8: Real GDP - Total value of goods and services produced within the US, regardless of who owns the assets (GNP – value produced by US citizens, regardless of location). Measured in real terms – Increases in the value of output due to inflation have been removed • Line 12: Unemployment rate - Percentage of the civilian labor force which is unemployed.

  5. Page 2 • Line 14 - Inflation: The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index; opposite of deflation • Line 15 – Core inflation: Inflation without the volatile food and energy markets • Line 24 – Labor productivity: Labor Productivity indicates the output per man-hour of labor. • Line 30 – Industrial activity: An index designed to measure changes in the level of output in the industrial sector of the economy .

  6. Page 3 • Line 35 - Capacity Utilization: The level of capacity utilization in the industrial sector provides information on the overall level of resource utilization in the economy which may in turn provide information on the likely future course of inflation. • Line 41 – Real spending: The amount consumers spend on goods and services. Accounts for about 2/3 of GDP • Line 43 – Consumer confidence: Consumer confidence is a measure of the level of optimism consumers have about the performance of the economy. Generally consumer confidence is high when the unemployment rate is low and GDP growth is high.

  7. Page 3 • Line 44 – Real disposable income: The amount of an individual's total income left after taxes, plus any transfer payments received from the government or elsewhere. • Line 48 – Housing starts: The number of residential building construction projects that have begun during any particular month. • Line 51 – Capital gains: A profit made from buying something (property, shares of stock, etc) and reselling it at a higher price.

  8. Page 3 • Line 54 – Retail sales: A monthly measurement of all goods sold by retailers based on a sampling of retail stores of different types and sizes. • Line 56 – Sales excluding autos: Many analysts choose to look at the figures "ex-auto", which means excluding the volatile car sales figure. It is thought that this number is a better measure of across-the-board purchasing trends

  9. Page 4 • Line 71 – OPEC Reference Basket Price: The OPEC Basket consisting of • Arab Light Saudi Arabia • Bonny Light Nigeria • Fateh Dubai • Isthmus Mexico (non-OPEC) • Minas Indonesia • Saharan Blend Algeria • Tia Juana Light Venezuela • OPEC: Organization of the Petroleum Exporting Countries

  10. Page 4 - 5 • Line 76 – CPI: It measures the change in the cost of buying a fixed basket of goods and services. • Line 77 – Core CPI: The CPI minus the food and energy markets. • Line 100 – Trade deficit: Annual amount spent by U.S. individuals, companies, and government agencies on foreign-made products, minus the amount spent by foreign entities on U.S.-made products. Imports – Exports where Exports are bigger.

  11. Page 5 - 6 • Line 103 – Depreciation of the dollar: If the dollar depreciates (is worth less), people will have more and are able to buy more U.S. products, therefore increasing the trade deficit • Line 110 – Budget deficit: The amount by which government spending exceeds government revenues. • Line 141 – target Fed Funds rate: The Fed formulates monetary policy by setting a target for the federal funds rate, the interest rate that banks charge one another for very short-term loans. Because the fed funds rate is what banks pay when they borrow, it affects the rates they charge when they lend.

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