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Reading the Economy
Rate of Change
New – Old
Old
600 – 500 = .2 = 20%
500
What To Look For
• What was expected?
• What happened?
• If they are different, the markets will react.
• How will the news affect the Fed?
Four Data Adjustments
• Real vs Nominal
• Moving Averages
• Seasonal Adjustments
• Core rates of price changes – excluding volatile food and energy sectors
Gross Domestic Product
GDP = C + I + G + (X-M)
GDP 2000
Gross Domestic Product (2000)
Consumption = 68%
(X-M) = - 3%
Investment = 17.9%
Government = 17.6%
Economic Growth
The Rate of Change of REAL GDP
Employment
• Household Survey – Unemployment rate
• Establishment Survey – new jobs created
• Employment Cost Index
• Initial Claims for Unemployment
• Productivity and Unit Labor Costs
Real vs. Nominal GDP
Year 1 Year 2 Difference % change
Nominal 220 280 60 27%
IPD
110 120
Real 200 233 33 16.5%
Real Oil PricesReal Oil Prices
0
10
20
30
40
50
60
70
19491953195719611965196919731977198119851989199319972001
Year
$ p
er b
bl
Real Teacher SalariesSalaries of California High School Teachers, Nominal and Real: 1985 - 2003
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Year
Sal
ary
($)
Nominal Salaries Real Salaries
Real Minimum WageReal and Nominal Minimum Wage 1985 - 2003
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Year
Wag
e ($
)
Minimum Wage ($ per hour) Real Minimum Wage
Prices
• *Core Producer Price Index
• *Core Consumer Price Index
• Implicit Price Deflator
*excluding the volatile food and energy sectors
The Consumer
• Personal Consumption Expenditures
• Retail Sales
• Index of Consumer Confidence
• Personal Income
Other Market Movers
• Any situation in an oil producing nation
• War and Peace
• Statements by Policy Makers
• Earnings reports
