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Published On: Sun, Nov 18th, 2012

Fundamental Analysis: Retail Sales, Manufacturing and Employment Data

In the previous tutorial, we looked at some of the broadest economic data reports and in this section we will center the focus and outline some of the economic reports that are used to get a smaller scale sense of how an economy is performing. Specifically, these sections will refer to Retail Sales, Manufacturing figures and Employment data, which can all be used to conduct fundamental analysis before spread betting trades are placed.

One key difference between this article and the previous section on fundamental analysis (covering GDP, Inflation and Interest Rates), is that the most specific information covered here is often considered to be better suited when analyzing the stock market, as these figures give us a better idea of how certain industries are performing within the larger economy.

Retail Sales

When analyzing a retail sales report, investors are assessing the potential impact of a country’s aggregate measure of the sales made in retail items within a certain time frame.   Generally, these numbers are viewed in terms of monthly performance and yearly performance, so you will usually see two separate numbers when this information is made available to the market.

Retail sales can vary (depending on the season) so the yearly data is generally viewed as a better indication of the consumer strength in the economy.  Additionally, these reports will also give detailed information about the sales made in various industry sectors (such as automobiles, clothing, food and household items, and electronics).  When looking at these details, traders are able to make assessments on the relative strength of an industry and buy or sell positions can be based on these assessments.

Because of all this, price movements in stock markets can become very volatile when this information is released.  But even when investors are not specifically looking to buy or sell the stock of an individual company, retail sales reports can be taken as a whole as a means for understanding the buying activity of consumers on a broader basis.  This information can be useful when establishing positions in currencies or commodities as well.

Manufacturing

Of course, not all companies fall into the retail category, so when looking to establish trades in industrial companies (for example building, construction or mining companies), other economic metrics must be used when we are conducting fundamental analysis on potential trade ideas.  To accomplish this, analysts look to manufacturing data and one of the most popular options is the Purchasing Managers’ Index, or PMI (which is released in all of the major economies).

To read the PMI report (and get an idea of the economic well-being of a country’s manufacturing sector), we must understand that the potential scores are divided into two parts: readings above 50 and those below 50.  A reading above 50 suggests that manufacturing expansion (growth) occurred during the reporting period (usually yearly or monthly).  Conversely, a number below 50 suggests that a contractionary period occurred, and there was less productivity when compared to the previous reporting period.  There are no negative numbers in the report.

Employment Data

The final economic report that we will address monthly jobs report.  These reports can vary in name, depending on the country in question.  Most countries refer to this report as the “Employment Change,” while in the US, this number is called the “Non Farm Payrolls.”  Generally these numbers are given on a monthly basis but some variations of employment data (such as the Unemployment Rate) will also give comparisons to the same data released the previous year.

When reading these numbers, analysts will see a positive or negative number, and this will indicate the number of jobs that were created (or lost) during the month.  Since active consumers usually need jobs in order to make purchases and support the economy, the monthly employment data is vital in determining the current state of an economy, allowing traders to predict future performance in economic activity.

Conclusion

While these reports do not constitute all of the releases that are used to conduct fundamental analysis, these are some of the most market moving releases, and prices in spread betting markets tend experience increased volatility when this information is made available.  These reports are vital when looking to conduct comprehensive fundamental analysis, and should always be researched before trades are placed.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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