Economists have a lingo all their own. When economists talk, people smile and nod, but many of them don't understand what was said or what it really means. Let's start with some common terms. Getting thru these will arm you for your next battle of wits with some one who thinks they know what they are talking about!
A great reference is the Economist Economics A-Z. http://www.economist.com/research/Economics/
GDP - Gross Domestic Product
Countries have GDP, cities and counties do not. GDP measures the total output of goods and services.
GDP = What consumers spent + Investment in buildings, tools, equipment + Investments in Wall Street and other financial markets + Government spending + Inventory + Exports - Imports
Measuring Growth
Economists are very picky about how they measure growth because how you measure changes the number. One way to measure is Unadjusted - the number is used, as is, without any corrections.
Another way to measure is Period to Period. The same time period is used to measure (April 08 to April 09.)
Seasonal Adjustments take out the fluctuations in the economy that happen because of time of year. For instance, if you compare job numbers from Christmas 08 to Christmas 09, that can be okay because you are hitting the same season. But, to compare actual job growth from March 08 to Christmas 08, you need to take into account the Seasonal Adjustment caused by holiday hiring and the lack of outdoor construction jobs in the most of the country. Construction is seasonal in much of the country, so a seasonal adjustment is used to account for the changes in employment during the year.
Leading and Lagging Indicators
Leading indicators tell if something may be happening. Lagging indicators confirm something is happening. Economies are complicated, so it can be difficult to tell if a recession is actually happening when it is starting. Economists want to confirm their suspicions before they make an announcement, which is why they announce we're having a recession 6 months into a recession - they finally got enough data to prove their theory.
The Conference Board http://www.conference-board.org/ provides information about indicators.
Leading indicators give a hint something may be starting to happen. Leading indicators include supplier deliveries, interest rate spread, shock prices, real money supply, index of consumer expectations, building permits, new manufacturing orders, average weekly manufacturing hours, average weekly initial unemployment claims, and new manufacturing orders for consumer good and materials.
Lagging indicators show something has happened and confirm changes. Lagging indicators include average duration of unemployment, commercial and industrial loans outstanding, change in labor cost per unit of output, change in Consumer Price Index (CPI) for services, ratio of manufacturing and trade inventories to sales, average prime rate charged by banks, ratio of consumer installment credit to income.
Coincident indicators change at the same time and the direction of change indicates if an economic event is happening and confirm what is being seen in leading indicators. Coincident indicators include personal income less transfer payments, manufacturing and trade sales, industrial production and employment.
Interest Rate Spread
Interest rates are supposed to reflect the amount of risk you are taking. If you're locking up money for 10 years, the rate should be higher than if you're locking up your money for 30 days. If you're putting your money into a risky investment where you might not get paid, you should get a higher rate than putting your money into a safe investment where you are guaranteed to get your money back.
Economists look at interest rate spreads to see how rates are relative to each other. Are short term rates lower than long term rates or are they almost the same? What's the difference between safe investments like Treasuries and risky investments like corporate junk bonds? Are the rates moving towards each other or away from each other? The economists are looking for patterns in interest rates to confirm what they think is happening.
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