Our economy is a very complex part of our life consisting of many major and minor parts. The following are the biggest and most important parts of our economy that play an enormous part of our life and the life of our country.
CAPACITY UTILIZATION
The Federal Reserve which compiles this data defines the term as “the greatest level of output that a plant can maintain within the framework of a realistic work schedule, taking account of normal downtime, and assuming sufficient availability of [raw materials] to operate the machinery and equipment in place”. In other words, capacity utilization measures actual production as a percent of the maximum output, which the industry (manufacturing, mining, or gas and electric utilities) can produce when its plant and equipment facilities and work force are fully applied. For example if capacity utilization is said to be 82% for a given month, this means that 82% of the nation’s industrial capacity is being used that month to build cars and turn out other products.
First of all these measures are used to predict future plant and equipment investment and second of all to foreshadow future price movements. Traditionally, capacity utilization is used as an indicator of inflation, especially when it consistently goes above the 82%-84% level. When factories operate so close to full capacity, companies are more likely to raise prices.
Capacity utilization also shows the employment trends. When production is at peak levels, factories tend to hire more people and/or have employees work more overtime.
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*******************************************************CONSUMER PRICE INDEX
The Consumer Price Index (CPI) measures changes in the prices of goods and services bought by households. It measures the price of a “market basket” of goods and services typically purchased by consumers. The CPI is the most commonly watched indicator of inflation in the economy. It is used to deflate economic measures of GDP, personal income, wages, and interest rates to get inflation-adjusted measurements of these concepts.
The Department of Labor’s Bureau of Labor Statistics compiles prices for items sold to consumers in “urban” areas which makes up about 80% of the population. Then the prices collected by the BLS are converted into 364 separate indices for everything from sneakers to gasoline. The various components are combined into an index of all items.
The overall index is weighted to reflect the buying habits of consumers with the components for housing, food, and transportation receiving more distinction than other components. The result is an index number that reflects what it would cost to buy the market basket of goods for that month.
Economists use the changes in CPI to measure inflation. If they need to check short-term inflation, they compare the most recent month’s index with the previous month’s figure. For a look at long-term inflation, they may check the most recent month’s index with the index for the same month in the previous year.
The CPI is used in about ¼ of all union contracts to automatically adjust wages to compensate for inflation, and is used by many non-union employers for the same objective. It is also used to adjust Social Security and other benefits to keep up with inflation.
*******************************************************DURABLE GOODS ORDERS AND SHIPMENTS
Durable goods orders measure the demand for durable goods, which are intended to last three or more years, such as cars, furniture and household appliances. Durable goods indicate future production in manufacturing, which is the largest contributor to industrial production. The Bureau of Census releases the monthly estimates of durable goods orders and shipments for the preceding month with monthly modifications.
The Essay on Inflation Index Bonds
Inflation Index Bonds According to opinion of numerous financial analysts and market participants, the extraordinary volatility of the financial markets, current disturbance in the American financial system and possible prognoses concerning increase of inflation are the issues of todays US financial market. However, not all market participants consider that inflation will impose a significant ...
Orders are a near-term indication of investment and consumption plans. Shipments indicate actual investment and consumer durable purchases by wholesalers and retailers. Due to the longer life of durable goods it is easier to delay purchasing them during hostile economic conditions such as unemployment or inflation. Consequently shipments of these goods tend to decrease a lot during economic recessions and bounce back quickly during recoveries.
*******************************************************GROSS DOMESTIC PRODUCT
Gross Domestic Product measures the total production of the economy in a given period of time. GDP includes production of foreigners as well as citizens. GDP is the major measure of overall economic activity.
The Bureau of Economic Analysis reports on GDP for the previous quarter. The first month after the quarter the BEA issues “advance” estimates, the second month – “preliminary” estimates and the third month “final” estimates of the GDP. Each July BEA revises the “final” estimates for the past few years based on new yearly data.
GDP is a way of tracking goods and services produced and consumed in the economy on a quarterly basis. GDP combines the markets for goods and services with the production of goods and services in one measure. Because the costs of production also produce wage and profit incomes, the total income equals the total output under the GDP accounting system. The analyses of the GDP are used to help the President and Congress in conceiving economic policies. They are also used to help the Federal Reserve Board in forming financial and income policies, which are aimed at maximizing employment growth and minimizing inflation.
*******************************************************HOUSING STARTS
A housing start refers to the breaking of ground – the actual initiation of construction of a residential building. Building permits record the number of authorizations issued for future housing starts.
When there is construction, it results in hiring of new workers, production and purchasing construction materials and equipment, and the sale of large household appliances such as stoves, refrigerators, etc. Then, when people occupy the new building, they often purchase new furniture, more appliances, and other furnishings. Consequently housing starts are a sign of employment, industrial production, and major spending on large items.
The Essay on Malaysia Unemployment Rate
An unemployed person is one who is able and willing to work yet is unable to find a job. Unemployment rate is the number of people officially unemployed divided by the labor force. Official unemployment measures those over the age of 16 who are able for employment, but are unable to obtain a job. The labor force is the number of people over the age of 16 who are either employed or unemployed. In ...
The Bureau of the Census reports housing starts every month (www.census.gov/ftp/pub/indicator/www/housing.html).
The rate of new housing building is affected greatly by the number of households, the growth of family income and by the level of mortgage interest rates over shorter periods. Because it is easy to delay housing until incomes and interest rates make it affordable, housing starts increase when interest rates are low and/or incomes are rising. Therefore housing starts fall when interest rates are high and incomes are falling. Increases in the amount of building licenses are a good indicator of future housing starts.
*******************************************************RETAIL SALES
Retail sales are the value of “business deals” at retail stores. It is measured by a survey of retail establishments. Retail sales include merchandise sold for cash or credit by businesses mainly engaged in retail trade; receipts from rental or leasing of vehicles; payments for layaway purchases. Also included are receipts from gas, liquor, tobacco, and other excise taxes, which are paid by the manufacturer or wholesaler and passed on to the retailer. Retail Sales is the first indicator of customer activity for the preceding month. They are broken down into durable and non-durable goods with principal interest on the sales of durable goods such as cars, which account for one half of all durable goods.
Estimates of personal consumption money spent are the largest contributors to GDP and are measured by retail sales. This number is a great indication of economic growth for the current quarter. Retail sales exclude the purchases of services.
*******************************************************UNEMPLOYMENT RATE
Unemployment is an economic indicator that everyone can relate to. The Department of Labor’s monthly employment report contains detailed data on unemployment. The civilian unemployment rate is the fraction of people over age 16 who are looking for work but cannot find a job. People who are not looking for work are not considered to be unemployed. The measure comes from a Labor Department survey of 60,000 households.
The Term Paper on Us Economy And Economic Indicators
... unemployment rate. Other indicators include the GDP, which measures the dollar value of all the goods and services of a nation, retail ... on the Value of Economic Indicators The US Economy and Economic Indicators The United States economy is the strongest and the ... is composed of residential (single family and multi-family housing) and nonresidential (auto factories, computers, oil rigs, etc) and ...
The unemployment rate is meaningful to politicians because it receives wide publicity and it can trigger voter anxiety about the health of the economy. It is a very important indicator of the economy’s health because it clearly reflects how well the nation is using its human resources.
*******************************************************S & P 500
S&P 500 or Standard and Poor’s 500 composite Stock Price Index is an index that keeps track of 500 major companies, whose stocks circulate all three stock markets in the United States. 457 companies of this index are on New York Stock Exchange (NYSE), 37 are on National Association of Securities Dealers Automated Quotations index (NASDAQ), and 6 are on American Stock Exchange Index. The S&P 500 was introduced in the 1920 and originally had only 90 companies. In 1957 the S&P 500 got it’s “500”.
By looking at the S&P 500 we see how the nation’s 500 major companies are doing compared to how they were doing before. Having this information we can know how business is going and consequently – how frequently stocks are being exchanged.
Following are 2 graphs of the S&P 500 Index.
#######################################################HOW IS OUR ECONOMY DOING?
Having some of the many economic indicators we can try to conclude how well or how poorly our economy is doing. We can’t just say it’s doing well based on one indicator however. We have to look for at least a few indicators to form any kind of a conclusion.
The President of the United States Bill Clinton made a brief report on the economy of the country. In January, it entered its 93rd month of expansion. This by itself is a great indicator that the economy is doing better than ever. Almost every part of it is increasing or improving in a positive direction.
The Essay on The effects of unemployment on the economy
Economists call unemployment a lagging indicator of the economy, as the economy usually improves before the unemployment rate starts to rise again. However, unemployment causes a sort of ripple effect across the economy. The two key problems resulting from unemployment, especially the unemployment of labor, are personal hardships and lost production. The owners of the unemployed resources suffer ...
Following are some of the economic indicators and how they are behaving and shaping our economy.
Unemployment: Economic data reveals that the unemployment rate reached a forty-one year low getting very close to full employment. Unemployment was only 4.3 percent in December. The last time that the unemployment rate became so low was in 1970 – 29 years ago. This shows that the country is using its human resources very well because so few people are unemployed. Also more new jobs were created decreasing the nation’s unemployment rate.
Housing Starts: Housing starts also improved greatly. Extended warm weather this year allowed construction to continue until very late fall. This also increased employment because workers were hired to build more houses and do other construction such as roofing etc.
Retail Sales: U.S. retail sales for November reached $229.4 billion, up 0.6% from last month. (Released 12/11/98)
Durable Goods Orders: Since more new houses were built and bought, people also bought more durable goods. More furniture, appliances and other durable goods are usually purchased when more houses are built because every house needs appliances such as refrigerator, washing machines, oven ranges etc.
We can see that the economy of the United States is doing more than great. Expansion is the best thing to happen to the economy and it has been expanding for the past 93 months – more than seven and a half years. Unemployment is at its lowest rate since 41 years ago, housing starts are up and most other economic indicators are also doing great. The economy is strong, says Mr. Clinton.
