GDP, PMI, ISM and retail sales: measuring growth
- GDP is the most complete measure of growth, but it comes out late and is revised several times.
- A PMI above 50 signals expansion, below 50 contraction: it's a fast, leading indicator.
- Retail sales tell you about consumer spending, the main engine of many developed economies.
An accelerating economy attracts capital and pushes its central bank to keep rates high. A slowing economy does the opposite. To track that pace, traders have several thermometers. Some are precise but slow, others fast but rougher. Knowing which one to watch, and when, changes your read of the market a lot.
GDP: the full picture, but late
Gross domestic product measures the value of everything a country produces over a period. It's the benchmark measure of growth. It's published every quarter, and its main weakness is the delay: by the time it comes out, the quarter ended weeks ago.
In the US, GDP arrives in stages: an advance estimate about a month after the quarter ends, then a second and third estimate in the following months, each more complete. The advance estimate moves the market most, since it brings new information. The later ones only matter if the revision is large.
In the eurozone, Eurostat publishes a flash estimate about a month after the quarter ends, often preceded by figures from Germany and France. In the UK, the statistics office even publishes a monthly GDP estimate, which makes it a more frequent event for the pound.
PMIs: the pulse of business
PMI indices (Purchasing Managers' Index) come from monthly surveys of purchasing managers. They're asked simple questions: are your orders, output, headcount and delivery times rising, stable or falling? The answers are combined into one index.
The index doesn't measure how big growth is but how widespread it is: the share of companies seeing activity improve. A drop below 50 is a strong signal, especially if it lasts. There are manufacturing PMIs, services PMIs and composite indices that combine the two.
Their big advantage is speed. Flash PMIs, preliminary estimates released toward the end of the current month for the eurozone, the UK, the US and other countries, give a picture of activity before the month is even over. That's why they often move the euro and the pound.
ISM: the key US benchmark
In the US, the market also follows the ISM indices (Institute for Supply Management). They work on the same principle with the same 50 line. ISM manufacturing comes out on the first business day of the month, ISM services on the third. Their sub-indices are valuable: new orders point to future activity, prices paid hint at inflation pressure, and the employment component serves as a clue ahead of NFP.
- Previous PMI
- 49.2
- Consensus
- 49.5
- Actual
- 51.0
- New orders sub-index
- sharply higher
- Reading
- back in expansion territory with a positive surprise, the currency tends to rise
Made-up figures. Crossing the 50 line amplifies the effect of the surprise.
Retail sales: consumer mood in numbers
In large developed economies, household spending is a big share of GDP. Retail sales measure each month what consumers spend in shops and online. In the US, the figure comes out around mid-month and regularly moves the dollar.
Focus on sales excluding autos, or even the control group, which also strips out gasoline, building materials and food services. Car purchases and fuel prices are very volatile and can skew the reading. These figures are in nominal terms, so part of any increase may simply come from inflation.
For the eurozone and the UK, retail sales usually move the currency less than in the US, because they come out later and cover a different scope. They're still useful to confirm a consumer trend, especially when they point the same way as consumer confidence surveys.
Leading, coincident and lagging indicators
Not every indicator tells the story of the same moment. Some point to what's coming, others confirm what already happened. Sorting them helps you decide how much weight to give each one.
| Type | Examples | Use for the trader |
|---|---|---|
| Leading | PMI, ISM new orders, consumer confidence, building permits | Anticipate a turn in the economy |
| Coincident | Industrial production, retail sales | Measure current activity |
| Lagging | GDP, unemployment rate | Confirm a trend already under way |
The market looks ahead, so it often reacts more strongly to leading indicators than to GDP, which PMIs and monthly data have already partly signalled. An in-line GDP figure sometimes barely registers, while a PMI that suddenly drops can start a trend lasting several days.
Putting the numbers together
- Don't draw conclusions from a single figure: look for a consistent series over several months.
- Always compare with the consensus and the previous figure, and check revisions.
- Link growth to the central bank: a strong economy delays rate cuts.
- Watch the divergence between the two economies in a pair, for example eurozone PMI versus US ISM for EUR/USD.
Check your understanding
0 / 3Educational content, not investment advice. Leveraged trading carries a high risk of losing money rapidly: most retail investor accounts lose money on these products.