Understanding the economic data - Part. 1

Institutional investors are aware of every economic data that goes to the market, they know data and projections from Pending Home Sales to Initial Jobless Claims. How about small retail investors? Are they/you aware of it? Do you know what they mean and how this can move the market mood?

This post is part of a series composed of economic data from United States, Europe and Asia. By the end of this series you will be able to comprehend the main economic data that professional investors considers in their investment decision.

Current Account Balance - Summarizes the flow of goods, services, income and transfer payments into and out of the US . The report acts as a line-item record of how the US economy interacts with the world economy. The Current Account is one of the three components that make up a country's Balance of Payments (Financial Account, Capital Account and Current Account), the detailed accounting of all international interactions. Where the other side of the Balance of Payments, Capital and Financial Accounts deal mainly with financial assets and investments, the Current Account gives a detailed breakdown of how the country intermingles with rest of the global economy on a non-investment basis - tracking good and services.

The GDP for the United States is a gauge of the overall output (goods & services) of the U.S. economy on the continental US GDP is the most comprehensive overall measure of economic output and provides key insight as to the driving forces of the economy.

ISM Manufacuring assesses the state of US industry by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Though manufacturing accounts for a relatively small portion of GDP, fluctuations in manufacturing tend to bear the most responsibility for changes in GDP. Consequently, developments in manufacturing often front run trends in the overall economy, making the ISM Manufacturing figure a leading indicator of economic turnarounds. A pickup in demand for manufactured products after a period of recession, reflected by a higher ISM figure, strongly suggests a reversal upward. Conversely a slowdown in manufacturing orders and production during a boom suggests a slowing of the economy.

Assessment of consumer sentiment regarding business conditions, employment and personal income. Based on a representative sample of thousands of mail-in surveys, the Conference Board index has the largest pooling sample of any U.S. measure of consumer confidence. Consumer Confidence levels are generally linked with consumer spending. For instance, when consumer confidence is on the rise consumer spending tends to increase. Low or falling consumer confidence on the other hand is typically associated with decreased spending and consumer demand.

Beige Book report on current economic conditions in each of the 12 Federal Reserve districts covering the entire US. Regional Banks in the Federal Reserve System gather anecdotal information based on surveys of executives, economist and market participants. The Beige Book summarizes this data into a relatively short document, giving a picture of economic trends and challenges faced by different parts of the nation.

CPI assesses changes in the cost of living by measuring changes consumer pay for a set of items. CPI serves as the headline figure for inflation. Simply put, inflation reflects a decline in the purchasing power of the dollar, where each dollar buys fewer goods and services. In terms of measuring inflation, CPI is the most obvious way to quantify changes in purchasing power. The report tracks changes in the price of a basket of goods and services that a typical American household might purchase. An increase in the Consumer Price Index indicates that it takes more dollars to purchase the same set basket of basic consumer items.

FOMC Rate Decision - The announcement of whether the Federal Reserve has increased, decreased or maintained the key interest rate. The FOMC meets eight times per year to decide on monetary policy. After each meeting policy decisions are announced. The main task of the FOMC is to set the monetary stance by fixing the overnight borrowing rate, which essentially sets short-term lending rates in the US. Through this mechanism, the FOMC attempts to affect price levels in order to keep inflation within the target range while maintaining stable economic growth and employment.

Employment (Non Farm Payrolls and unemployment rate) - One of the most widely anticipated reports on the US economic calendar, the Employment Situation is a timely report that gives a picture of job creation, loss, wages and working hours in the United States. Data in the report relies on the Household Survey and the Establishment (or Payroll) Survey. While the Household Survey is based on the interviews to US households, the Establishment Survey queries business establishments, making it the preferred source of data. The Employment Situation's has many significant figures such as: Change in Non Farm Payrolls, Unemployment, Manufacturing Payrolls, and Average Hourly Earnings.

The Pending Home Sales report is an advanced read on trends in the US housing market. Housing is typically correlated to the overall state of the economy; particularly indicative of economic turning points. A sharp drop in housing demand typically acts as a warning signal of economic slowdown as buyers are reluctant to purchase houses when interest rates are high, disposable income is low, or consumer confidence is low. Conversely, a rebound in the housing market is often a leading indicator of an economic recovery.

Source: Fxwords, Federal Reserve.

Andrew Mwenda takes a new look at Africa

Great speech from Andrew Mwenda. He has assiduously criticised aid agencies and charities for what he says is their ineffectiveness and collusion with corruption. He believes that western aid has been largely unhelpful for African development, since it encourages dependency, sustains wars and fuels corrupt states

I am very, very happy to be amidst some of the most -- the lights are really disturbing my eyes and they're reflecting on my glasses. I am very happy and honored to be amidst very, very innovative and intelligent people. I have listened to the three previous speakers, and guess what happened?Every single thing I planned to say, they have said it here, and it looks and sounds like I have nothing else to say.

(Laughter)

But there is a saying in my culture that if a bud leaves a tree without saying something, that bud is a young one. So I will -- since I am not young and am very old -- I still will say something.

We are hosting this conference at a very opportune moment because another conference is taking place in Berlin. It is the G8 Summit. The G8 Summit proposes that the solution to Africa's problems should be a massive increase in aid,something akin to the Marshall Plan. Unfortunately, I personally do not believe in the Marshall Plan.One, because the benefits of the Marshall Plan have been overstated. Its largest recipients were Germany and France, and it was only 2.5 percent of their GDP. An average African country receives foreign aid to the tune of 13, 15 percent of its GDP,and that is an unprecedented transfer of financial resources from rich countries to poor countries.

But I want to say that there are two things we need to connect. How the media covers Africa in the West, and the consequences of that. By displaying despair, helplessness and hopelessness, the media is telling the truth about Africa, and nothing but the truth. However, the media is not telling us the whole truth. Because despair, civil war, hunger and famine, although they're part and parcel of our African reality, they are not the only reality. And secondly, they are the smallest reality.

Africa has 53 nations. We have civil wars only in six countries, which means that the media are covering only six countries. Africa has immense opportunities that never navigate through the web of despair and helplessness that the Western media largely presents to its audience. But the effect of that presentation is it appeals to sympathy.It appeals to pity; it appeals to something called charity. And, as a consequence, the Western viewof Africa's economic dilemma is framed wrongly.The wrong framing is a product of thinking that Africa is a place of despair. What should we do with it? We should give food to the hungry. We should deliver medicines to those who are ill. We should send peacekeeping troops to serve those who are facing a civil war. And in the process Africa has been stripped of self-initiative.

I want to say that it is important to recognize that Africa has fundamental weaknesses. But equally, it has opportunities and a lot of potential. We need to reframe the challenge that is facing Africa from a challenge of despair, despair which is called poverty reduction, to a challenge of hope. We frame it as a challenge of hope, and that is worth creation. The challenge facing all those who are interested in Africa is not the challenge of reducing poverty. It should be a challenge of creating wealth.

Once we change those two things -- if you say the Africans are poor and they need poverty reduction,you have the international cartel of good intentionsmoving onto the continent, with what? Medicines for the poor, food relief for those who are hungry,and peacekeepers for those who are facing civil war. And in the process none of these things really are productive because you are treating the symptoms, not the causes of Africa's fundamental problems. Sending somebody to school and giving them medicines, ladies and gentlemen, does not create wealth for them. Wealth is a function of income, and income comes from you finding a profitable trading opportunity or a well-paying job.

Now, once we begin to talk about wealth creation in Africa, our second challenge will be, who are the wealth-creating agents in any society? They are entrepreneurs. [Unclear] told us they are alwaysabout four percent of the population, but 16 percent are imitators. But they also succeed at the job of entrepreneurship. So where should we be putting the money? We need to put money where it can productively grow. Support private investment in Africa, both domestic and foreign. Support research institutions, because knowledge is an important part of wealth creation.

But what is the international aid community doing with Africa today? They are throwing large sums of money for primary health, for primary education, for food relief. The entire continent has been turned into a place of despair, in need of charity. Ladies and gentlemen, can any one of you tell me a neighbor, a friend, a relative that you know, who became rich by receiving charity? By holding the begging bowl and receiving alms? Does any one of you in the audience have that person? Does any one of you know a country that developed because of the generosity and kindness of another? Well, since I'm not seeing the hand, it appears that what I'm stating is true.

Bono: Yes!

Andrew Mwenda: I can see Bono says he knows the country. Which country is that?

Bono: It's Ireland.

(Laughter)

Bono: [unclear]

Thank you very much. But let me tell you this.External actors can only present to you an opportunity. The ability to utilize that opportunity and turn it into an advantage depends on your internal capacity. Africa has received many opportunities,many of them we haven't benefited much. Why? Because we lack the internal institutional framework and policy framework that can make it possible for us to benefit from our external relations. I'll give you an example.

Under the Cotonou Agreement, formerly known as the Lome Convention, African countries have been given an opportunity by Europe to export goods, duty-free, to the European Union market. My own country, Uganda, has a quota to export 50,000 metric tons of sugar to the European Union market.We haven't exported one kilogram yet. We import 50,000 metric tons of sugar from Brazil and Cuba.Secondly, under the beef protocol of that agreement, African countries that produce beefhave quotas to export beef, duty-free, to the European Union market. None of those countries, including Africa's most successful nation, Botswana, has ever met its quota.

So I want to argue today that the fundamental source of Africa's inability to engage the rest of the world in a more productive relationship is because it has a poor institutional and policy framework.And all forms of intervention need support, the evolution of the kinds of institutions that create wealth, the kinds of institutions that increase productivity. How do we begin to do that and why is aid the bad instrument? Aid is the bad instrument, and do you know why? Because all governments across the world need money to survive. Money is needed for a simple thing like keeping law and order. You have to pay the army and the police to show law and order. And because many of our governments are quite dictatorial, they need really to have the army clobber the opposition. The second thing you need to do is pay your political hangers-on. Why should people support their government? Well, because it gives them good paying jobs. Or, in many African countries, unofficial opportunities to profit from corruption.

The fact is, no government in the world, with the exception of a few like that of Idi Amin, can seek to depend entirely on force as an instrument of rule.Many countries in the [unclear], they need legitimacy. To get legitimacy, governments often need to deliver things like primary education,primary health, roads, build hospitals and clinics. If the government's fiscal survival depends on it having to raise money from its own people, such a government is driven by self-interest to govern in a more enlightened fashion. It will sit with those who create wealth. Talk to them about the kind of policies and institutions that are necessary for them to expand a scale and scope of business so that it can collect more tax revenues from them.The problem with the African continent and the problem with the aid industry is that it has distorted the structure of incentives facing the governments in Africa. The productive margin in our government's search for revenue does not lie in the domestic economy, it lies with international donors.

Rather than sit with Ugandan --

(Applause)

Rather than sit with Ugandan entrepreneurs,Ghanaian businessmen, South African enterprising leaders, our governments find it more productive to talk to the IMF and the World Bank. I can tell you, even if you have ten Ph.D.s, you can never beat Bill Gates in understanding computer industry. Why? Because the knowledge that is required for you to understand the incentives necessary to expand a business, it requires that you listen to the people, the private sector actors in that industry.

Governments in Africa have therefore been given an opportunity by the international community to avoid building productive arrangements with your own citizens, and therefore allowed to begin endless negotiations with the IMF and the World Bank, and then it is the IMF and the World Bank that tell them what its citizens need. In the process we, the African people, have been sidelined from the policy-making, policy-orientation, and policyimplementation process in our countries. We have limited input, because he who pays the piper calls the tune. The IMF, the World Bank, and the cartel of good intentions in the world has taken over our rights as citizens, and therefore what our governments are doing, because they depend on aid, is to listen to international creditors rather than their own citizens.

But I want to put a caveat on my argument, and that caveat is that it is not true that aid is always destructive. Some aid may have built a hospital, fed a hungry village. It may have built a road, and that road may have served a very good role. The mistake of the international aid industry is to pick these isolated incidents of success, generalize them, pour billions and trillions of dollars into them, and then spread them across the whole world, ignoring the specific and unique circumstances in a given village, the skills, the practices, the norms and habits that allowed that small aid project to succeed -- like in Sauri village in Kenya where Jeffrey Sachs is working -- and therefore generalize this experience as the experience of everybody.

Aid increases the resources available to governments, and that makes working in a government the most profitable thing you can have as a person in Africa seeking a career. By increasing the political attractiveness of the state,especially in our ethnically fragmented societies in Africa, aid tends to accentuate ethnic tensions as every single ethnic group now begins struggling to enter the state in order to get access to the foreign aid pie. Ladies and gentlemen, the most enterprising people in Africa cannot find opportunities to trade and work in the private sectorbecause the institutional and policy environment is hostile to business. Governments are not changing it. Why? Because they don't need to talk to their own citizens. They talk to international donors. So the most enterprising Africans end up going to work for government, and that has increased the political tensions in our countriesprecisely because we depend on aid.

I also want to say that it is important for us to note that over the last 50 years Africa has been receiving increasing aid from the international community in the form of technical assistance, and financial aid,and all other forms of aid. Between 1960 and 2003 our continent received 600 billion dollars of aid,and we are still told that there is a lot of poverty in Africa. Where has all the aid gone?

I want to use the example of my own country called Uganda and the kind of structure of incentives that aid has brought there. In the 2006-2007 budget, expected revenue 2.5 trillion shillings. The expected foreign aid: 1.9 trillion. Uganda's recurrent expenditure -- by recurrent what do I mean? Hand-to-mouth -- is 2.6 trillion. Why does the government of Uganda budget spend 110 percent of its own revenue? It's because there's somebody there called foreign aid who contributes for it. But this shows you that the government of Uganda is not committed to spending its own revenue to invest in productive investments, but rather it devotes this revenue to paying structure of public expenditure. Public administration, which is largely patronage, takes 690 billion. The military, 380 billion. Agriculture, which employs 18 percent of our poverty-stricken citizens, takes only 18 billion. Trade and industry takes 43 billion. And let me show you what does public expenditure --rather, public administration expenditure -- in Uganda constitute? There you go. 70 cabinet ministers, 114 presidential advisers -- by the way, who never see the president, except on television.

(Laughter)

(Applause)

And when they see him physically, it is at public functions like this, and even there, it is him who advises them.

(Laughter)

We have 81 units of local government; each local government is organized like the central government -- a bureaucracy, a cabinet, a parliament, and so many jobs for the political hangers-on. There were 56, and when our president wanted to amend the constitution and remove term limits, he had to create 25 new districts, and now there are 81. 333 members of parliament. You need Wembley Stadium to host our parliament. 134 commissions and semi-autonomous government bodies, all of which have directors and the cars and -- and the final thing,this is addressed to Mr. Bono. In his work he may help us on this.

A recent government of Uganda study found that there are 3,000 four-wheel drive motor vehicles at the Minister of Health headquarters. Uganda has 961 subcounties, each of them with a dispensary,none of which has an ambulance. So the four-wheel drive vehicles at the headquarters drive the ministers, the permanent secretaries, the bureaucrats and the international aid bureaucrats who work in aid projects while the poor die without ambulances and medicine.

Finally, I want to say that before I came to speak here, I was told that the principle of TEDGlobal is that the good speech should be like a miniskirt -- it should be short enough to arouse interest, but long enough to cover the subject. I hope I have achieved that.

(Laughter)

Thank you very much.

(Applause)