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By Janine Martin - Comox Valley Record
Published: October 02, 2008 6:00 PM
Economists assess the market and the underlying economy through a variety of statistical indicators. Measuring economic activity is basically a matter of assessing supply and demand through numeric values. There are literally hundreds of statistical numbers that are crunched each month to indicate movement in a variety of economic areas — everything from housing starts to unemployment, to mortgage rates, to consumer spending.
Since no single statistical number can give a total picture of the economic health of a country such as Canada or the U.S., economists make assumptions based on the sophisticated hodgepodge of data.
Some of the key economic indicators include:
Gross Domestic Product (GDP): GDP measures the amount of goods and services produced by a country and is one of the most sought-after numbers. Because it reflects the economy so closely, it is considered a key indicator of the economic pulse of a country.
Analysts look for a change in GDP over a period of time, whether month-to-month, quarter-to-quarter or year-to-year. If the GDP number is up, it indicates a growth in production and vice versa if the number has dropped over a period of time.
Retail Sales: This economic indicator, released each month, is an estimate of consumer spending in durable and non-durable items. In other words, it measures the strength or weakness in retail demand. Retail sales statistics are also available that exclude automobile sales. A growth in retail sales is positive for the economy and indicates consumer confidence.
Unemployment Rate: This is another sought-after number that is released every month. As the name implies, it measures the percentage of the workforce that is not working. If jobs are growing, it indicates the economy is growing.
Consumer Price Index (CPI): This popular statistic used by economists is a key economic indicator that measures inflation. Basically, it is a measure of the price one pays for a fixed basket of goods and services. Two numbers are given for the CPI: a core number that does not include food and energy products in your basket, and a number that does include food and energy items.
Economic Controls Through Interest Rates: The Bank of Canada and its U.S. equivalent, the U.S. Federal Reserve, look closely at economic indicators and adjust monetary policies to maintain economic stability. They strive for gradual movements in the business cycle, trying to protect the economy from dramatic swings.
The Bank of Canada and the U.S. Federal Reserve try to stabilize the economy through gradual interest rate changes. If the economy is expanding too quickly, for example, the policymakers raise interest rates to slow down activity, or lower interest rates when growth is needed.
Make no mistake, these gradual interest-rate changes, however small, affect everything from mortgage rates and stock market prices, to automobile sales and the pace of T-shirt sales at our local retailers.
For more information, contact Janine Martin, investment adviser with Odlum Brown Limited, Member CIPF, at 250-703-0637 or jmartin@odlumbrown.com. Her column appears Fridays.
