Lessons › Fundamentals and news › Big-picture numbers: inflation, jobs and growth
World 7 · Fundamentals and news · lesson 7 · level 3
Big-picture numbers: inflation, jobs and growth
Big reports on prices, jobs and growth show how healthy an economy is, and markets move when the numbers surprise.
In one line
Big reports on prices, jobs and growth show how healthy an economy is, and markets move when the numbers surprise.
Explained simply
Imagine a doctor's check-up for a whole country: temperature, heartbeat and growth charts. Inflation, jobs and growth reports are that check-up for an economy. Markets react most when the results are a surprise.
The lesson
Inflation reports such as the consumer price index (CPI) show how fast prices are rising, jobs reports show employment, and gross domestic product (GDP) measures total economic output. Purchasing managers' indexes (PMIs) are business surveys where readings above 50 usually signal expansion. Markets react to the gap between the actual figure and the forecast, often within seconds. In the US, CPI and the jobs report come out monthly and GDP quarterly, at scheduled times that traders mark in advance.
A worked example
Illustrative example: economists forecast yearly inflation of 3.0%, and the CPI report shows 3.4%, a surprise of 0.4 points (3.4 minus 3.0), so the report is hotter than expected. A PMI reading of 52 is 2 points above the 50 line (52 minus 50), signalling expansion, while 47 would be 3 points below it (50 minus 47), signalling contraction.
The same idea at four levels
- Beginner. Big economic reports show how an economy is doing, and markets react when the numbers surprise.
- Foundation. CPI measures inflation, the jobs report measures employment, GDP measures total output, and a PMI above 50 usually signals expansion.
- Intermediate. What matters is actual versus forecast: a figure hotter or cooler than expected moves prices, often within seconds.
- Advanced. In the US, CPI and the jobs report come out monthly at 8:30 New York time, and GDP comes out quarterly with three estimates.
- Expert. Experts stay flat or cut size into major releases, since spreads widen and prices can jump both ways before settling.
Mistakes to avoid
- Reacting to the headline number without comparing it with the forecast.
- Trading full size into a release, when spreads widen and prices jump.
- Forgetting to convert release times into your own time zone.
Check yourself
What does CPI measure?
How fast consumer prices are rising. CPI tracks inflation.
What does GDP measure?
Total economic output. It is the size of the economy's production.
A PMI reading above 50 usually signals what?
Expansion. 50 is the dividing line.
What moves markets most on a release?
The gap between the actual figure and the forecast. Surprises move prices.
How often does the US publish CPI?
Monthly. National CPI indexes are published monthly.
Goal of this lesson: Understand the main economic reports and why markets react to them.