Understanding Consumption Business Sentiment Metrics
We’ve already covered key employment indicators so we will now focus on metrics related to
consumption and business confidence.
Consumption
What do Retail Sales measure?
Retail sales are an important indicator of consumer demand and economic health because
they track the finished goods and services that businesses and consumers purchase. The sales
figures are generally separated into headline rates, which encompass a wide range of goods,
and core rates, which do not include certain items such as cars and gas stations, which are
subject to volatile energy prices. Retail sales data, which is reported monthly and annually, is
important for currency markets as an acceleration can strengthen a currency while a
slowdown can weaken it.
How are Consumer Confidence Indicators used?
Consumer confidence indicators show how optimistic or pessimistic consumers are about
the state of the economy. Both retail sales and consumer behaviour are significantly
influenced by these indicators, which are derived from surveys measuring consumers’
outlook on future economic prospects. For example, a survey of about 2,300 consumers in
the Eurozone is used to measure consumer sentiment. Increased consumer optimism is
indicated by higher readings, which could strengthen the associated currency. Conversely,
drops in readings could result in currency depreciation.
Business Confidence
Current Economic Conditions
Business indicators obtained through surveys are frequently used to measure current
economic conditions and reflect the true state of businesses. These metrics, which are
released every month, might change depending on the economy being surveyed and the
surveying agency. A reading that is higher than expected suggests that things are getting
better, which could strengthen the value of the corresponding currency. Conversely, a
reading that is lower than expected by the market could indicate that things are getting
worse.
Economic Sentiment Indicators
Conversely, economic sentiment indicators measure the level of optimism that businesses
have, usually when it comes to the next six months or so. It is generally believed that these
indicators are positive for the global economy and its currency if they show that businesses
within the economy are still optimistic. On the other hand, a drop in economic confidence
might have unfavorable consequences.
Stay tuned for the upcoming lesson which will cover more indicators worth considering.