Key Economic Measures For Dummies
Money Supply--Amount of money in circulation. Weekly report by the FED. Moderate growth of MS has a positive impact on the economy's growth. A rapid growth or a sharp slowdown are synonymous to future inflation and future recession, respectively.
Weak Dollar--It has a mixed effect as it makes domestic equity markets less attractive to foreign investors. US products are more attractive which in turn is good for the economy.
Interest rates--Rising rates have negative effect on stock markets as bond markets become more competitive.
Level of economic activity--as it increases, demand for funds increases, and interest rates tend to rise. During recession rates tend to fall.
Federal Deficit--mixed effect: positive in a depressed economy; can lead to inflation in a stronger economy. Typically, as it increases, demand for funds increases, interest rates increase.
Employment--% of workforce that is involuntarily out of work. Unemployment is a bad guy: business activity is slowing down.
Industrial Production--Change in physical output of US factories, mines, and utilities. Published monthly by the FED. Continued increase is a sign of strength for GDP, and therefore for the equity market.
Personal Income--Before-tax wages and salaries, interests, dividends, rents, payments, compensations, and pensions. Issued monthly by the Commerce department. As it increases, buying increases.
Retail sales--All sales at the retail level. Monthly issue by the Commerce Department. Gives an idea of consumer attitudes; a long slow down in sales can lead to cuts in production.
Housing Starts--Includes the number of new building permits issued across the country. Issued monthly by the Labor Department. A pickup in the pace of housing starts usually follows an easing of credit conditions, whichis an indication of economic health. Early indicator of future economic health.
Inflation--Bad to stock: higher inflation leads to higher rates which leads to higher P/E which make stocks less attractive. The FED usually increases interest rates to fight inflation.
Consumer Prices--Changes in prices for a fixed basket of goods and services. Issued monthly by the Labor Department. Measures inflation.
Producer Prices--Changes in price of different goods at different stages of production (from raw materials to finished goods). Issued monthly by the Labor Department. Better measure of Inflation.
