Economic statistics gages how the economy is doing and how well we are contributing to the economy. Any change to an Economic statistic can alter our choices; for example, the car you want to buy, the company you want to invest, or the family trip to Disneyland.
Economic statistics are not 100% accurate; otherwise, we live in a perfect world. Almost all Economic statistics can be challenged; for example, in 1996, economists found the Consumer Price Index overstates the Inflation Rate due to outdated criteria in calculating the CPI. Regardless, Economic statistics serves as a guide when making choices.
The Economic statistics I like to talk about are the Gross Domestic Product, Consumer Price Index, Unemployment Rate, Personal Income and Disposable Income, Consumer Spending, Retail Sales, Consumer Confidence & Expectations, Standard & Poor 500, Dow Jones Industrial Average, and the Trade Deficit.
The Gross Domestic Product (GDP) measures production in the United States of all final goods, services, and structures produced in one year from labor and from property. The GDP is calculated by counting how much goods, services, and structures produced. After counting total production, a dollar value is assigned for each output.
GDP can be looked in another way which is the expenditures approach. GDP is calculated by summing all spending on final goods, services, and structures produced. The expenditures approach is the following:
The Consumer Price Index (CPI) measures average change in prices for a hypothetical fixed market basket of goods and services. Price changes are determined by comparing the recent market basket of goods and services and the prior market basket of goods and services. The CPI determines the inflation rate which is the percentage change in the CPI.
In Autumn 1996, there was a controversy concerning the CPI overstating the inflation rate. The CPI fails to recognize changes in consumer purchases when prices of goods and services change because the CPI uses a fixed market basket. Also, the CPI fails to recognize changes in the quality of goods and services.
Beginning in August 2002, the CPI publishs a supplement CPI called the "Chained" CPI. The Chained is designed to improve measuring how consumers tend to change their purchasing when prices change, new products, and improved products are in the market.
The Unemployment Rate calculates the percentage of the civilian labor force not working. The civilian labor force consists of nonconfined civilians between the age of 16 and age of 65. Armed force personnel are excluded from the civilian labor force; although they constitute approximately 2% of the labor force.
An employed civlian laborer is defined as working a minimum one hour a week or working a minimum fifteen hours for no pay in a family-owned business. An unemployed civilian laborer is defined as not currently working and actively seeking for a job or available for working. The Unemployment Rate does not take account discouraged workers who are not working and not actively seeking employment.
The Unemployment Rate is calculated by taking the number unemployed divided by the civilian labor force. A one-tenth of one percent (or .1%) change constitutes a 1,000% change in the civilian labor force. Generally, most economists agree the United States have low unemployment when the Unemployment Rate is betwen 5% to 6%.
Personal Income (PI) is total income received by people minus social insurance payments such as Social Security. Also subtracted are undistributed corporate profits and transfer payments from the government. Disposable Personal Income (DPI) is PI minus tax and nontax payments. DPI is the income people spend for goods and services.
Consumer Spending (or personal consumption expenditures or C when calculating the GDP) accounts for two-thirds of the GDP. Consumer Spending is total personal consumption expenditures in durable goods, nondurable goods, and services.
Retail Sales calculates total sales for all retail stores. Retail stores constitutes 40% of consumer spending or personal consumption expenditures.
Consumer Confidence Index calculates consumer's "faith" in the economy when making choices to spend, to invest, and to save. The Consumer Confidence Survey collects data to calculate the Consumer Confidence Index. The major questions in the survey include status of business, expectations of business, income, and vacation plans.
Consumer Expectations Index is a subcomponent of the Consumer Sentiment Index. The Consumer Sentiment Index collects data from a survey which consists of personal finance, business conditions, and buying conditions. The Consumer Expectations Index is a great indicator for future economic activity.
The Standard & Poor 500 (S&P 500) is one popular stock price performance index. The 500 stocks S&P 500 represents four major industries: industrial, public utilities, transports, and finance. The S&P 500 is a value-weighted index which reflects total market value of a company's stock. For each of the 500 stocks, the total shares is multiplied by the price per share to get the total market value. Each of the 500 stocks are added together and indexed to a base period 1941-1943. The S&P 500 is the official measure of stock prices for the Bureau of Economic Analysis.
The Dow Jones Industrial Average (Dow Jones) consists of 30 firms' stocks which approximates the price movements. When the Dow Jones goes up, the market is moving up. When the Dow Jones goes down, the market is moving down. Any 30 firms' stocks representing the Dow Jones change over time. The Dow Jones represents 25% of the New York Stock Exchange total value.
Note the Dow Jones is a value-weighted average; in other words, the DJIA is the sum of the 30 stocks' price divided by a fixed divisor.
The Trade Deficit is a country imports more than exports. Since 1976, the United States have imported more than exported; hence, the term "trade deficit" in the media. A trade deficit strengthens a country's currency because more currency are paid to foreigners to make up the deficit. In the United States, more dollars circulating compared to foreign currencies make the dollar worth more:
Three major factors contribute to large trade deficits. I am explaining these factors from the United States perspective; hence, the dollar can be substituted for another currency.
Date Last Updated: Saturday February 23, 2002