Non-economists who are interested in learning the principles of economics are always inquisitive about the indicators that measure the economy. I would like to share with you the five numbers I personally pay close attention to. The information may easily be found on the page of the Federal Reserve Bank of Saint Louis (Economic Data).
1. Inflation. The common definition of inflation is when “too much money pursues too few goods”. When the demand goes up and limited goods exist in the economy, the price grows on account of the quantity of money and it leads to inflation. Inflation measures the cost of goods and services. Inflation discourages savings and investment (especially in bonds), decreases the purchasing power of money and increases interest rates. The measurement of inflation is the Consumer Price Index (CPI)
Though high inflation is not desirable for the economy, a moderate growth may indicate that the level of production is going up as well as consumption.
2. Employment. This is one of the most important indicators in the economy that brings blood to the heart. People who have jobs are willing to spend their money or invest them. By doing these they create the circle called “the circulation process”. The money sent to the economy starts working and then comes back to the people who spent them on different items or invested in different sources. The more hired people we have, the better it is for the economy and the easier it is for the market to its equilibrium levels. To read more about employment please visit the Bureau of Labor Statistics.
3. Housing Market. Is the American dream still alive? The house market is always considered to be the leading indicator of the American life. Having a house gives a person a feeling of significance and opportunity to prosper.
4. Consumer Expenditures. The more detailed information about spending you can find using the link below: Consumer Expenditures
5. Consumer Confidence Index. The index that shows us the confidence the buyers have about the future situation in economy. There are two important questions in the survey:
- Is it easier to open/lead a business now?
- Is it easier to find a job?
To learn more about the indicator, please visit the link below: Consumer Confidence Index
Things about the consumer price index (CPI)
1. What is the CPI?
A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
2. How is the CPI used?
- as an economic indicator;
- as a means of adjusting dollar values;
3.How is the CPI market basket determined?
The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought.
4. What goods and services does the CPI now?
- Food and beverages;
- Medical Care;
- Education and communication;
- Other goods and services(haircuts; tobacco)
5. Is the CPI the best measure of inflation?
The CPI, along with, the GDP deflator plays a fundamental role in calculation of inflation. It is the most well-known method that economists use.
6. How to compute the CPI?
CPI = (Market basket in current year / Market basket in base year) X 100%