202 economic indicators
TRANSCRIPT
Economic IndicatorsGDP, Unemployment and Inflation
Gross Domestic Product
•The market value of all final goods and services produced in a country in a given year.
•The market values of all final goods and services produced in a country within a given year.
•Market – what the good sells for
•Final – no resale or intermediate goods
•Produced in - no matter who owns company
•Given – annual figure
Divide into four categories•C – Consumption by households•I – Investment by businesses, incl R&D•G – Government spending•(X-M) – (Exports – Imports)
•GDP = C + I + G + (X-M)
• Change usually more interesting than actual number.
Mostly consumer-driven:
• http://blogs-images.forbes.com/mikepatton/files/2014/12/Table-US-GDP-Components-2011.jpg
Write C, I, G or (X-M) and or
•Due to a tax cut, consumers decide to buy more new cars.• C up and GDP up
•Worried about an increasing budget deficit, the government decides to buy fewer military planes• G down and GDP down
•Increasing prices in the US encourage Americans to buy more foreign goods.• M up and (X-M) down thus GDP down
Write C, I, G, or (X-M) and or •Due to a tax increase, consumers decrease
purchases on vacation travel• C down and GDP down
•Due to increased incomes, Europeans buy more US goods• X up making (X-M) up thus GDP up
•Businesses are optimistic about the future and increase the construction of new factories• I up and GDP up
Some economic activity is left out
•Informal Work▫(Shadow Economy)
•Subsistence Work
•Care Work
If we measure it, it must matter•GDP measures economic activity, not
well-being…. What is the effect of•Cutting down all of our forest’s and
selling the wood▫Increase C and X thus increasing GDP
•Doubling government spending because of war
Increase G thus increasing GDPEffect of BP Oil Spill, link
Measures of Economic Well-being•SPI ted talk
Measures of Economic Well Being•Green GDP – account for environmental
damage
•Video Example
•This would not beIncluded, lighting
Unemployment Rate
In Civilian Labor Force ifOver 16Not in militaryHave a jobActively looking for work
Not in labor force if,
-Retired, -Discouraged
Workers those who have given up –looking, or
-Full-time student
• Unemployed if▫ Over 16▫ Actively looking for work in last 4 weeks▫ Available to work▫ And, do not have a job
Not Unemployed if Given up looking U1-U6 definition
s
Unemployment rate tends to undercount unemployment because of
▫Underemployed▫Reduced Hours▫Discouraged Job Seekers
Source: MSN
Types of Unemployment•Cyclical Unemployment
▫Due to recessions•Seasonal Unemployment
▫Due to seasonal changes, teachers & lifeguards
•Structural Unemployment▫Due to skills becoming obsolete
•Frictional Unemployment▫Due to transition to better or equal job
What happens to the UR, if• In May, there is a surge of college graduates
looking for work• A number of workers give up looking for work• Most construction workers take off Nov-Feb
because of weather conditions• After a particularly touching Dr Phil episode
people unhappy with their bosses quit to find a better job
• With the invention of solar cars, gas stations all over the country go out of business
A dollar doesn’t buy what it used to•In Zimbabwe, video
▫Hyperinflation Prices changing by the hour
How it is measured•Percentage change in the CPI•Consumer Price Index
•Cost of a constant market basket of goods each time period.
Find the Cost of the market basket•Done every year
How it is done•Calculate CPI
Basket Cost 2012/Basket cost 1984 = CPI 2012 with base year of 1984
•Calculate Inflation with percent change in CPI▫CPI 2012 – CPI 1984------------------------------ * 100 CPI 1984
Problems with measureInaccuracy Over or Under
Estimate InflationMarket basket changes every ten years
Over
Quality Improvements OverWe change our point of purchase
Over
We look for substitutes Over
Using the inflation rate•COLA – Cost of Living Adjustment
•Over time dollar comparisons▫Real vs Nominal
Nominal – in current dollars Real - inflation adjusted dollars
Go from Nominal to Real Dollars•Nominal is the change on the price tag or
paycheck
•Real dollars accounts for inflation
Real vs Nominal Stamp Prices
Real vs Nominal Gallon Gas
Real vs Nominal Minimum Wage
Costs of (unexpected) inflation•Hurts Savers•Hurts Retirees and those on fixed income•Hurts Lenders
Causes of Inflation•Too much money in circulation relative to
amount of goods•Inflation, Bubbles and Tulips•Demand-pull•Cost-push•Wage-price spiral
Misery Index
•Unemployment rate plus inflation rate•http://www.miseryindex.us/
indexbyyear.aspx?type=IR
Additional Indicators•Consumer Spending (approx 70%)
•Manufacturing
•Stock Market
•International Markets current/capital
Consumer Spending•Consumer Confidence & Consumer
Sentiment•Retail Sales•Durable Goods orders
▫Goods that last more than 3 years•Housing:
▫New Home sales, Construction•Personal Income & Spending
Manufacturing•PPI
▫Predicts CPI changes•Factory Orders
▫Leading indicator•Wholesale trade
▫Value of business inventories▫I/S ratio lagging indicator
Stock Markets•S&P 500
▫75% of equities traded tracked by Standard & Poor
•Dow Jones Industrial Average▫Tracks 30 of the largest companies on the
stock market. Picked by the WSJ
•NASDAQ Composite Index▫Electronic stock market, US and non-US tech
companies
International•Trade Balance
•Current account•Capital account
Timing of indicatorsLeading Coincident Lagging• Manufacturing
Hours• New unemp claims• Consumers new
orders• ISM index new
orders• MFR new orders,
( excl defense and aircrafts)
• Bldg permits• S&P 500• Leading Credit
Index• 10yr Int rate
spread• Consumer
expectations
• GDP • Income• Employment• Sales-Inventory
ratios• Labor costs• Prime rate