Economics 101

"The Big Picture is What Counts"

For our economy, the system of wins, loses, and ties, is a host of so-called economic indicators. You may have heard about several of them used to measure the scope of our economic slowdown and ugly flirtation with a bear market.

Any mention of these indicators can be a cause of alarm or the opposite. Nevertheless, they are the vital signs of the nation's economic health.

Some of the indicators are Gross Domestic Product (GDP), Consumer Price Index (CPI), reports by the National Association of purchasing Managers (NAPM), monthly returns on retail sales, durable goods, housing starts, car sales, Producer Price Index (PPI)- are you lost yet? - Consumer Confidence Index, Employment Cost Index (ECI), etc., etc., To get even more technical, there is even an index of indexes - the venerable Index of Leading Indicators, of which the stock market itself is one.

Most of the numbers are released monthly. And don't be fooled, they are a big deal not only to economists but to stock and bond fund managers as well as corporate decision-makers.

Each indicator tells a piece of the economy's story. Different indicators matter more at different times. For example when the economy is strong, economists watch inflation indicators, such as CPI which measures the changes in the price of goods and services bought by households; the PPI, which measures changes in wholesale costs; and the ECI, a quarterly measure of change in wages and benefits.

Also if the economy is weak, you hear more about car, house and retail sales, consumer confidence, inventories, production, etc., When sales are down, inventories go up, production is reduced, and unemployment rises. In other words, that means a lower GDP, lower growth and the fear of recession. GDP, the quarterly measure of our economic growth is always watched.

When inflation rises and the economy overheats, the Federal Reserve Board steps in and raises interest rates to slow things down. When growth slows and recession looms, the Fed lowers interest rates to stimulate business. And when fed Chairman Alan Greenspan explains why the central bank did this, that, or nothing, just about everybody pays attention. In this respect the Fed itself is a sort of indicator.

At any given moment, the most important indicators are GDP, employment, the PPI, CPI, ECI, and retail sales. The average John Public does not really care about all these indicators. "It's a mistake to get too wrapped up in the day-to-day events of the economy," says one financial planner. "The big picture is what counts."

CPI

NAPM

PPI

ECI