Consumer Spending Indicators and Forex Trading

Consumer spending economic indicators are important to forex market traders because they indicate the consumer demand levels as well as their sentiments. Both of them provide the initial data on which the computations of such indicators as the GNP and the GDP are done.

There are several indicators that the forex market trader should consider regarding consumer spending. They are as follows:

Employment Figures

Forex market traders tend to concentrate on:

• Unemployment rate
• Manufacturing payrolls
• Non-farm payrolls
• Average earnings
• Average weekly work hours

The most commonly used employment figure for estimating consumer spending is the non-farm payroll rate. The latter is estimated by the following formula:

Rate = (Total Labor Force - Employed Labor Force) / Total Labor Force

The unemployment rate comes third in terms of importance to forex traders after manufacturing and non-farm payrolls.

Retail Sales

The retail sales tend to reflect the consumer demand and the corresponding consumer confidence. This makes the indicator one of the most closely observed consumer spending indicators by forex market participants. It is also very important in the United States, since the economy of the country is consumer-focused. The logic behind is that when consumers have enough free money for spending or the corresponding credit for purchases, then more goods and services will be produced or imported.

Retail sales are generally influenced by seasonal variations in consumer spending. The months during which forex traders most closely observe the retail sales are December and September, because during the first sales are influenced by the holidays and during the latter the back-to-school spending influences the figures.

Retail sales are closely watched by forex traders since they consider them as a good measure for the overall strength of the economy and the resulting strength of the nation's currency. Undated information on this indicator can be found every month.

Consumer Sentiment

This indicator represents a survey conducted among households in order to evaluate the individual propensity to spend.

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