In the previous article, I wrote about macroeconomic analysis, which requires studying economic data, market expectations, monetary policy, fiscal policy, market liquidity, and asset price performance. Starting from this article, I will analyze and explain these data.

4. Economic data
We often hear the phrase, "The market is the barometer of the economy." GDP is one of the most core indicators of economic health. It represents the total value of goods and services produced by a country over a period of time, reflecting the overall size of the economy. However, GDP is a lagging indicator because it is usually released a few months after economic activities occur, so it does not reflect the current economic situation in a timely manner. Therefore, investors and analysts need to rely on other economic data to understand economic trends in advance and predict the direction of GDP.

4.1 Dismantling GDP and Identifying Core Data

First, we break down GDP and find the most core factors that affect the US economy.

The composition of GDP is divided into consumption (68%), personal investment (residential 4% and non-residential 14%), government spending (17%), and net exports (exports 11% - imports 14%). It can be seen that the core driving force of US economic growth is consumption, so the data affecting consumption is the total weight! In economic theory, the factors that affect consumption are
a. Related to stock money: disposable income, wealth effect; the more assets you have, the more you dare to spend.
b. Related to income: employment and unemployment rates, government taxation and transfer payment policies; the more stable and higher the income, the more willing people are to spend.
c. Related to costs: inflation, interest rates, credit conditions, savings rates; the more stable prices are, the lower the cost of money is, and the more willing people are to spend.
d. Related to expectations: consumer confidence and expected income; the better the expectations for the future, the higher the confidence and the more willing consumers are to spend.


4.2 Tracking economic data and looking for leading indicators

Let’s first look at the specific time when economic data is released.

Whether the indicator is leading corresponds to whether it is leading or not. Compared with GDP, inflation rate, and employment situation, the characteristics of leading indicators are
a. Higher frequency, able to correct judgments in a timely manner: Initial unemployment claims
b. Faster in time, able to predict other data in advance: ISM Manufacturing PMI, University of Michigan Consumer Confidence Index
c. Related to the production side, prices can be transmitted to the consumer side and reflect people’s investment enthusiasm: ISM manufacturing PMI, PPI, new housing starts and building permits, durable goods orders
d. Related to consumption expectations, which account for 68% of US GDP and reflect the private sector's expectations for the future economy: University of Michigan Consumer Confidence Index


4.3 Summary

By breaking down GDP and analyzing various economic data, we can better understand economic operations and their driving factors. Although GDP is released with a lag, leading indicators can timely predict economic trends and help us predict future trends. This year, there is an obvious phenomenon in macro research. Good data is sometimes positive and sometimes negative, making macro research more metaphysical. This is related to market expectations. After understanding the economic data, we need to understand market expectations to judge what kind of data is positive and what kind of data is negative. This will be explained in the next chapter.