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10 Economic Data to Look Out for Every Month

economic data

At the beginning of every month, government agencies or various institutions release key economic data that indicates the performance of our overall economy. Analysing these data sets can help us make informed decisions and become intelligent stock market participants. In this article, we shall discuss the top 10 economic data/indicators that you can track and analyse every month.

1. Gross Domestic Product (GDP)

Released by: National Statistical Office (NSO)

GDP stands for Gross Domestic Product. It is a key economic indicator that represents the total monetary value of all goods and services produced within a country’s borders during a specific period. It is typically measured on a quarterly or annual basis. GDP is used to assess and quantify the economic performance and health of a country.

GDP is a critical metric for policymakers, economists, and investors as it provides insights into the overall economic activity, growth, and standard of living in a country. However, it’s important to note that GDP alone does not capture the entire economic well-being or societal progress, as it does not consider factors like income distribution, environmental impacts, or the overall quality of life.

2. Employment Data

Released by: Ministry of Statistics and Program Implementation (MoSPI)

Employment and unemployment data are other essential economic indicators. This data helps us understand the health of the labour market and the overall economic conditions in a country. It shows the number of people currently employed and actively seeking employment. It also shows the number of people unable to fund jobs although willing to work.

The total labour force consists of all employed and unemployed people in an economy. The unemployment rate shows the economy’s spare capacity and unused resources. Moreover, unemployment tends to be cyclical and decreases when the economy expands. When the economy expands, companies employ more employees to meet growing demand.

Check out MoSPI’s official website here.

3. Consumer Price Index (CPI)

Released by: Ministry of Statistics and Program Implementation (MoSPI)

The Consumer Price Index (CPI) measures the changes in the retail price level of general goods and services. These are goods that our Indian households buy for their daily consumption needs. CPI is also helpful in understanding the real value of wages, salaries, and pensions, and the purchasing power of a country’s currency.

Typically, CPI shows inflation in the economy. An increase in CPI indicates that prices of essential retail goods are surging. The Reserve Bank of India (RBI) currently uses the Consumer Price Index as the key measure of inflation to set the monetary and credit policy.

4. Wholesale Price Index (WPI)

Released by: Ministry of Commerce and Industry

The Wholesale Price Index (WPI) measures the changes in the price of goods sold and traded in bulk by wholesale businesses to other businesses. In simple terms, WPI is a measure of the wholesale price movements in the country. It includes only the prices of goods and does not include any items related to services.

If the index keeps rising every month, it means that prices of goods are getting inflated at the wholesale level. This may lead to an increase in input costs for manufacturing companies, thus cutting short profit margins.

5. Interest Rates

Released by: Reserve Bank of India (RBI)

The repo rate is the interest rate at which a central bank lends money to commercial banks for short periods. This rate influences borrowing costs, consumer spending, and business investment. When repo rates are lower, loans become cheaper, stimulating economic growth through increased spending and investment.

Central banks adjust the repo rate to control inflation. They raise it to reduce borrowing and spending during economic overheating, which can also impact exchange rates, attracting foreign investment with higher rates. These changes in the repo rate can also influence other interest rates, such as the prime lending rates.

Moreover, the repo rate has an impact on the stock market. Lower rates make equities more appealing to investors. Monitoring the repo rate provides valuable insights into the economy’s state and outlook, guiding decisions for businesses, investors, and policymakers

6. Goods & Services Tax Collection Report

Released by: Ministry of Finance

Both Central and state governments levy taxes on the goods and services sold in India. We have the Central GST (CGST) and State GST (SGST). At the beginning of each month, the ministry publishes the aggregate and state-wise GST collection report.

We can interpret how the overall economy is performing while comparing the GST collection reports to those of the previous months. An increase in GST collection depicts that consumers are spending more money which, in turn, helps the economy and related companies.

7. Purchasing Manager’s Index (PMI)

Released by: S&P Global

Released on: The first week of every month.

PMI measures the industrial activity of a country. It gives us a preview of manufacturing activities before the actual industrial data is released. To calculate the index, IHS Markit selects purchasing managers and business executives of specific companies to answer a set of questions on business, employment, and inventories. Based on their answers, a scale ranging from 0 to 100 is calculated. PMI is calculated for both the manufacturing and services sectors.

A PMI above 50 represents an expansionary phase in the corresponding sector. If the PMI value is greater than that of the previous month, it signifies that the economy is improving over time. Similarly, a PMI below 50 represents a contraction in the corresponding sector.

8. Forex Reserves

Released by: Reserve Bank of India (RBI)

Forex reserves are like a country’s savings account in foreign currencies. They show how financially strong and stable the country is. Having enough reserves helps keep the value of its money steady and ensures smooth international transactions. These reserves are essential for paying for imports and foreign debts without causing economic strain. When a country has ample reserves, it gives confidence to investors and international markets, attracting more investments and protecting against financial troubles.

Forex reserves also allow the country’s central bank to intervene in currency markets, stabilising the value of its money and preventing sudden changes.

9. Auto Sales

Released by: Every automobile manufacturer in India.

Every auto manufacturer operating in India has to report its monthly sales figures.

Analysis: We can compare the sales figures with that of the previous month as well as year-on-year (YoY) data to interpret the demand for vehicles. If overall sales have declined heavily, we can consider it as a bearish phase for auto manufacturers and auto ancillary companies, as their businesses have declined.

10. Foreign Exchange Rate

Released by: Reserve Bank of India (RBI)

RBI quotes the rate of the Indian Rupee (INR) to foreign currencies (mainly the US Dollar) daily.

At the beginning of every month, we can find out whether INR has become stronger or weaker. If the Indian Rupee is getting weaker every month, it is beneficial for exporting companies (and IT players as well), as they will be able to generate more revenue. Whereas, if the Rupee is getting stronger, manufacturers who import raw materials (crude oil, metals, minerals) only need to exchange fewer currencies compared to the previous month, which decreases their expenses.

Impact of Economic Data on the Stock Market

Economic data can have a significant impact on the stock market. Investors and traders use this information to measure the health and prospects of the economy and individual companies. Here’s how each of the above-mentioned economic data points can influence the stock market:

GDP

GDP growth reflects the overall health of the economy. Positive GDP growth is generally associated with increased corporate earnings and can drive stock market appreciation.

Employment Data

Positive employment data signals a strong job market and increased consumer spending, potentially leading to higher stock prices. Conversely, rising unemployment may result in market uncertainty.

WPI and CPI

Inflation data affects purchasing power and corporate profitability. High inflation can lead to uncertainty in the market and impact stock prices.

Interest Rates (Repo Rate)

Central bank interest rate decisions influence borrowing costs and investment decisions. Lower interest rates can stimulate borrowing and spending, positively affecting stocks.

Goods and Services Tax (GST)

Changes in GST rates can impact consumer spending and corporate earnings, influencing stock prices in sectors affected by these changes.

Purchasing Managers’ Index (PMI)

PMI measures the health of the manufacturing sector. A PMI above 50 indicates expansion, which can boost investor confidence and drive stock market growth.

Forex Reserves

High forex reserves indicate a stable economy and may boost investor confidence in the country’s financial markets, attracting foreign investment and potentially leading to higher stock prices.

Foreign Exchange Rate

A strong domestic currency relative to foreign currencies can impact exports and the profitability of multinational companies. A weaker currency can benefit exporters and certain industries, potentially leading to stock market gains.

Auto Sales

Strong auto sales indicate consumer spending and economic activity. Positive auto sales data may signal a healthy economy and potential stock market gains, particularly for automobile-related companies.

In conclusion, economic data acts as a barometer for a country’s overall health. It can influence investor sentiment, corporate earnings, and market trends. Investors closely monitor these data points to make informed decisions and adjust their stock market strategies accordingly.

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Editorial

Sri Lanka’s Economic Crisis And China vs India

Right now, the economic situation in Sri Lanka is grave. It has piled up external debt over the years, has run out of its foreign reserves, and is facing a food crisis. Two superpowers are plotting a strategic game amidst the crisis— India and China. In this piece, we discuss the economic crisis, what led to it, and how it could possibly impact India. 

The Situation

Simply put, Sri Lanka has taken a lot of loans from other countries. It accumulated a massive amount of debt over time. Between 2011 and 2021, Sri Lanka’s total external debt has more than doubled. The total debt owed by Sri Lanka in fiscal 2020 was USD 49.2 billion. This was close to ~57% of Sri Lanka’s total GDP. Sri Lanka did pay back a tiny part of the debt over time. In the process, it depleted its foreign exchange (forex) reserves. For a developing country like Sri Lanka, a forex reserve would help in three ways: 

  • To maintain confidence in its monetary policy and exchange rate in the foreign market for its own currency, the Sri Lankan Rupee (LKR).
  • To pay back the debt that it took from other countries.
  • For having a greater buying power that would enable Sri Lanka to import goods. 

India was in a similar situation in 1991. It had nearly depleted all of its forex reserves that would roughly last three weeks. That is when the government decided to liberalize and privatize the Indian economy to attract foreign investment. 

Coming back to Sri Lanka. The country is now facing a severe food shortage. Imports of essential goods were banned. These included motor vehicles, clothes, cosmetics, and even Sri Lanka’s staple item, turmeric. Sri Lanka imports 7,000 tonnes of turmeric every year, out of which 5,000 tonnes come from India. This has sent the price of turmeric skyrocketing, causing a row in Sri Lanka. Even its primary source of foreign currency was shut during the COVID-19 pandemic, the Tourism Industry. 

Sri Lanka has banned the import of fertilizers as well. The government is encouraging farmers to undertake ‘Organic Farming’. This fertilizer ban has caused a decline in crop production while impacting farmers’ financial conditions. Shortage of food has sent its prices skyrocketing. 

Sri Lanka has the daunting task of boosting economic growth, increasing forex reserves, and cutting down on its external debt. All of this is combined with the uncertainty of COVID-19. However, amidst Sri Lanka’s grim economic situation, two countries seem to play a tug of war amidst Sri Lanka’s grim situation, India and China.

China At Play

China is playing what is known as debt-trap diplomacy. In a debt trap move, China would target countries with poor economic conditions yet are rich in resources and raw materials. Chinese companies, banks, or financial institutions would then lend money to these countries for unsustainable projects, at commercial interest rates. Countries desperate enough for financial assistance would accept this deal, hoping to replenish forex reserves and boost economic activity. Unable to pay back the loan on time, these countries would then be ‘compelled’ to lease their essential assets to China. One such example is Sri Lanka’s port, Hambantota. 

Sri Lanka intended to develop the Hambantota seaport in Southern Sri Lanka. The only country that showed a willingness to fund the project was China, through its EXIM Bank. The bank extended loans to Sri Lanka between 2007-2016. For the first phase of the project, the bank lent USD 307 million to Sri Lanka at an interest rate of 6.3%, a considerably high interest rate. 

Sri Lanka did manage to complete the project, but there was no ship traffic to the port because of a rock in the sea bed that was blocking the way for ships. In 2016, low on forex reserves and unable to pay the loans, Sri Lanka was left with no choice but to lease it to China for a period of 99 years. There are reports that China is planning to turn around the project into a multipurpose port by 2022. Recently, a Chinese ship with radioactive material was intercepted by Sri Lankan authorities at Hambantota port. Is it possible that China is planning to convert it into a strategic military base?

When China took control of the Hambantota seaport, India initiated talks with Sri Lanka to run a joint venture and operate Hambantota Airport. This was an indicator of a power tiff between rivals India and China. 

What’s At Stake For India?

China has benefited immensely from Sri Lanka’s economic crisis. Close to 10% of Sri Lanka’s external debt is owed to China. In fiscal 2020, China beat India in being Sri Lanka’s top import partner. Although Sri Lanka forms a tiny portion of India’s export basket, its location is strategically crucial.  

India and China haven’t had the best trade relationships lately. China has now strategically surrounded India from all sides by acquiring important seaports and routes in all directions. This will not only give its Navy an advantage but will also help China in advancing its shipping route positions. Sri Lanka has till now been a small yet significant ally to India, in terms of diplomacy, military support, and trade. Nevertheless, China seems to be courting Sri Lanka.

India has had a bumpy relationship with Sri Lanka lately. In Feb 2021, India refused to extend a currency swap facility to Sri Lanka. Sri Lanka was allegedly responsible for the death of three Tamil Nadu fishermen that had apparently strayed into Sri Lanka waters.

To get out of a similar forex crisis in 1991, India took the help of the International Monetary Fund (IMF) but faced severe economic restrictions. Eventually, India got out of the crisis, and the rest is history. Sri Lanka has refused any help from the IMF and continues to take loans, grants, and currency swaps with China. Moving ahead, Korea, India, China, and even the Asian Development Bank have extended their support to Sri Lanka through grants and currency swaps. Banning imports cannot be the solution in the long term to maintain stability within the country. Sri Lanka will have to undertake some austerity measures to ensure sustainable growth. 

Categories
Editorial

What Is Taper Tantrum? Can It Affect The Indian Economy?

Ex-RBI Governor Raghuram Rajan in a statement said that India could face another ‘Taper Tantrum’ sometime soon. A Standard and Poor’s(S&P) report stated that India, Philippines most vulnerable in a ‘taper tantrum’-like scenario. So what exactly does the word ‘taper tantrum’ mean? What does it mean for the Indian economy? Let’s find out.

The Taper Tantrum of 2013

  • The story dates back to the 2008 housing market crisis in the US. Banks had given out huge amounts in housing loans to people who couldn’t afford to pay it back. At the end of it, banks were left with huge amounts in unpaid loans, the stock markets had crashed. Eventually, a lot of money was lost in bad loans, crashed stock markets, and junk bonds. The global economy was crippled. 
  • This is when the US Federal Reserve or the Fed, which is the central bank in the US comes into the picture. The US Fed announced Quantitative Easing(QE). In Quantitative Easing, the government is essentially pumping money into the economy. It does so by cutting interest rates, buying bonds from the market, policymaking, and other banking instruments. The Fed had the mission of refilling the banks and the economy with cash.
  • Remember, in bonds, as the demand for them increases, their price increases, and yield decreases, and vice versa. The Fed first bought all the short term US-Treasury notes from financial institutions, this decreased the short-term interest rates. However, the interest rate on long-term notes was intact. Soon, short-term interest rates on loans were almost close to zero. This is good for the borrower, but what about the lender? It’s bad news for the lender. The lender then has to search for other instruments yielding higher interest rates. Finally, The investors in the US found two solutions, the stock market and foreign investment in developing countries. 
  • India wasn’t impacted much by the global economic crisis in 2008. Fairly so, India became an investment opportunity for US Investors. While the global flows had declined by 10.5% in 2008, Foreign Direct Investment(FDI) in India increased by 46% the same year. This was the case with many developing economies. They received foreign investment in huge amounts from already developed countries that were affected by the global economic crisis. These developing countries prospered from foreign investments.
  • Now comes the ‘Taper Tantrum’. Fast forward to 2013, the economy had revived, things were going pretty well all around the world, which is when the Fed announced that they were going to ‘taper’ or ‘wind down’ the Quantitative Easing(QE) or essentially stop pumping money into the system. While this was just an ‘announcement’ this sent ripples across the globe. 
  • Now, foreign investment is much riskier than investing in local sovereign bonds. The announcement by the Fed to taper the Quantitative Easing made investors believe that the interest rates back home would go up. This would increase the incentive to invest in safer domestic instruments like bonds over foreign investment.

What was the Impact?

  • What was the impact of the announcement? Naturally, since the stock markets were overpriced, investors started withdrawing money from the stock markets. They also started withdrawing funds that were invested in the emerging markets. This caused economic turmoil in emerging markets across the world. Investors started exchanging the local currency (Indian Rupee) for the Dollar. This had a negative impact on the price of the Indian Rupee(INR) against the US Dollar(USD).  
  • Since the government would stop buying bonds from the market, it was perceived that bond prices would decrease. Therefore, the bondholders started selling their bonds which lead to a decrease in price and increase in yield of bonds. This period was relatively short-lived and therefore called the ‘Taper Tantrum’. Even though the Fed had announced, it decided to hold back on its decision after the Taper Tantrum for some time. 

Taper Tantrum Coming Back?

The economic situation in 2021 is similar to that of the economic crisis in 2008. When the taper tantrum occurred, sectors with high foreign investments, debt mutual fund holders, and bondholders were affected the most. Governments are intensively pushing stimulus packages and Quantitative easing programs to restart the economy. Stock markets are overpriced and a lot of foreign investors have shored up in emerging markets. 

Finance Minister Nirmala Sitharaman said that India does not face a risk of Taper Tantrum, as it did in 2013 and that the ministry and RBI are vigilant enough to avoid the situation this time.

The last Taper Tantrum was a panic reaction from investors in a volatile market. It wasn’t correlated to any other macroeconomic factors in the past. The macroeconomic conditions of 2021 aren’t similar to that of 2013. Unlike last time, economists and bankers might have learned their lessons and a Taper Tantrum-like situation might not actually happen after all.