Spoting Economic Trends
GOLLIHUGH FINANCIAL SERVICES
4 DUNNINGTON COURT
SPRINGBORO OHIO 45066
937-748-4504
The Fed doesn’t have the power many people think when it comes to moving the economy.
After all, the biggest forces in the economy are consumers—people who make day-to-day decisions about whether to save more, buy a car, remodel the house, or go on vacation. That's why economists closely watch the amount consumers spend, how much they have to pay for goods and services, their employment status, and their confidence levels.
In fact, many of the most important economic indicators described below are designed to provide standardized measures of consumer activities and are widely reported in the media.
Gross Domestic Product (GDP)
GDP measures the output of the economy. Estimates of GDP are made for each quarter, and the rate of growth or contraction is expressed as an annual figure.
A growing economy generally means more jobs, higher incomes, and more opportunities for businesses to earn profits. While GDP growth is often regarded as good news for financial markets, it’s possible to have too much of a good thing. If the economy is growing too rapidly, investors may worry that shortages of goods and workers will develop and cause inflation to worsen.
The main components of GDP are consumer spending; investment by businesses in new equipment, facilities, and inventories; spending by federal, state, and local governments; and net exports (exports minus imports). Statistics about these economic components provide clues to the direction of the economy.
Consumer Price Index (CPI)
For consumers and investors, one of the most important economic factors to watch is inflation, whose best-known indicator is the Consumer Price Index.
The CPI tracks the prices of some 80,000 goods and services—food, housing, transportation, health care, and clothing, among others—purchased by consumers. Changes in the CPI are used to adjust some aspects of Social Security and the federal income tax as well as certain labor and rental contracts.
The bond market, in particular, is sensitive to upward trends in the CPI, since inflation undermines the value of the fixed-interest payments paid by most bonds.
Personal income and spending
Because consumer spending makes up the lion’s share of economic activity in the United States, monthly reports on personal income and expenditures are among the most important economic statistics. The biggest component of personal income is the hourly wages and salaries workers earn. Other important sources of income include Social Security payments, pensions, and interest and dividends from investments.
Consumer confidence
Consumer spending is influenced not only by personal income, but also by how willing people are to spend the money they have. That’s why surveys of consumers’ attitudes are important economic signals. If consumers are optimistic, they tend to spend more freely; if they’re pessimistic, they tighten their belts. High consumer confidence is considered an indication of likely continued economic growth.
Productivity
When companies are able to produce more goods and services with the same resources, productivity is up. Over the long run, nothing is more important for a healthy economy than rising productivity—getting more goods and services per hour of work. Higher productivity means businesses can increase profits or wages for workers without increasing prices.
Productivity can be increased by investing in new machinery, computers, and computer software; scientific and technical innovation; and improving processes. Higher productivity is almost always regarded as good news for financial markets.
Employment and unemployment
Each month, the U.S. Department of Labor surveys individuals and businesses to gather employment and unemployment data. The unemployment rate is the percentage of people in the total workforce actively seeking jobs, including new entrants into the workforce and people who have lost jobs and are looking for new ones.
A rise in unemployment generally signals a slowing economy; falling unemployment is generally good news. Investors sometimes grow concerned that very low unemployment rates will cause employers to bid up wages and benefits to attract workers, resulting in higher costs and more rapid inflation.
To help give a better picture of what's happening in the labor market, the department also tracks statistics on workers' hours and wages.
Jobless claims
This weekly report on claims for unemployment insurance benefits, or jobless claims, tracks people who have lost jobs and applied to their states to receive unemployment compensation. This report can be an early indicator of changes in employment trends and in the economy.
4 DUNNINGTON COURT
SPRINGBORO OHIO 45066
937-748-4504
The Fed doesn’t have the power many people think when it comes to moving the economy.
After all, the biggest forces in the economy are consumers—people who make day-to-day decisions about whether to save more, buy a car, remodel the house, or go on vacation. That's why economists closely watch the amount consumers spend, how much they have to pay for goods and services, their employment status, and their confidence levels.
In fact, many of the most important economic indicators described below are designed to provide standardized measures of consumer activities and are widely reported in the media.
Gross Domestic Product (GDP)
GDP measures the output of the economy. Estimates of GDP are made for each quarter, and the rate of growth or contraction is expressed as an annual figure.
A growing economy generally means more jobs, higher incomes, and more opportunities for businesses to earn profits. While GDP growth is often regarded as good news for financial markets, it’s possible to have too much of a good thing. If the economy is growing too rapidly, investors may worry that shortages of goods and workers will develop and cause inflation to worsen.
The main components of GDP are consumer spending; investment by businesses in new equipment, facilities, and inventories; spending by federal, state, and local governments; and net exports (exports minus imports). Statistics about these economic components provide clues to the direction of the economy.
Consumer Price Index (CPI)
For consumers and investors, one of the most important economic factors to watch is inflation, whose best-known indicator is the Consumer Price Index.
The CPI tracks the prices of some 80,000 goods and services—food, housing, transportation, health care, and clothing, among others—purchased by consumers. Changes in the CPI are used to adjust some aspects of Social Security and the federal income tax as well as certain labor and rental contracts.
The bond market, in particular, is sensitive to upward trends in the CPI, since inflation undermines the value of the fixed-interest payments paid by most bonds.
Personal income and spending
Because consumer spending makes up the lion’s share of economic activity in the United States, monthly reports on personal income and expenditures are among the most important economic statistics. The biggest component of personal income is the hourly wages and salaries workers earn. Other important sources of income include Social Security payments, pensions, and interest and dividends from investments.
Consumer confidence
Consumer spending is influenced not only by personal income, but also by how willing people are to spend the money they have. That’s why surveys of consumers’ attitudes are important economic signals. If consumers are optimistic, they tend to spend more freely; if they’re pessimistic, they tighten their belts. High consumer confidence is considered an indication of likely continued economic growth.
Productivity
When companies are able to produce more goods and services with the same resources, productivity is up. Over the long run, nothing is more important for a healthy economy than rising productivity—getting more goods and services per hour of work. Higher productivity means businesses can increase profits or wages for workers without increasing prices.
Productivity can be increased by investing in new machinery, computers, and computer software; scientific and technical innovation; and improving processes. Higher productivity is almost always regarded as good news for financial markets.
Employment and unemployment
Each month, the U.S. Department of Labor surveys individuals and businesses to gather employment and unemployment data. The unemployment rate is the percentage of people in the total workforce actively seeking jobs, including new entrants into the workforce and people who have lost jobs and are looking for new ones.
A rise in unemployment generally signals a slowing economy; falling unemployment is generally good news. Investors sometimes grow concerned that very low unemployment rates will cause employers to bid up wages and benefits to attract workers, resulting in higher costs and more rapid inflation.
To help give a better picture of what's happening in the labor market, the department also tracks statistics on workers' hours and wages.
Jobless claims
This weekly report on claims for unemployment insurance benefits, or jobless claims, tracks people who have lost jobs and applied to their states to receive unemployment compensation. This report can be an early indicator of changes in employment trends and in the economy.
posted by crg1 at 4:51 PM
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