Dr. Curtis: The 5 Key Indicators of Economic Activity
Plus, an addendum plug from Bill Rice, Jr. and one left-over youth basketball photo.
“How can I tell how the economy is doing? I keep hearing different bits and pieces, and I don’t know what to believe. It is all confusing to me.”
Like the long-time reader who posed the question, you would like to keep up with what is happening in the economy. Given the vast amount of information disseminated by newspapers, magazines, television, radio, and online, you may be confused as to what indicators are most important.
You may find some disagreement regarding my list. But, in my opinion, to keep abreast of the economy, you should look for five items. They are gross domestic product, the unemployment rate, the consumer price index, the prime interest rate, and the mortgage interest rate.
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Gross domestic product (GDP), the value of goods and services the economy produces, calculates total output in the economy. It is a monetary measure of the market value of all the final goods and services produced in a specific time period by the United States. GDP data are released on a quarterly schedule but are often revised on a monthly basis. An increase in GDP signals growth, while a decrease indicates shrinkage.
The unemployment rate — the percentage of the workforce that is out of work and actively seeking employment — provides a snapshot of how the economy is performing. The unemployment rate is published monthly and may mean more to the average person than GDP.
The consumer price index (CPI) measures the monthly change in the price of a given “basket” of goods and services purchased by typical consumers. It covers a large number of items — food, housing, apparel, transportation, medical care, energy, and entertainment — that all of us typically purchase. An increase in the CPI signals inflation and a decline indicates deflation.
As consumers borrow or save money, they face short-term interest rates. The benchmark short-term rate, called the prime, is what banks charge their most creditworthy borrowers. Both consumer loans and consumer deposits are usually adjusted to the prime.
Long-term interest rates are a final indicator. Individuals sometimes borrow for longer periods, such as financing a home over a period of 15 to 30 years. Mortgage interest rates, published daily, best reflect long-term rates.
Like it or not, we are all held captive by the economy. And it is in our best interest to keep informed. Watch for these five reports!
Hopefully, this answers your question and provides some clarity regarding the direction and health of the economy.
Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at wccurtis39 @gmail.com.
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Note from Bill Rice, Jr. …
Dr. Curtis has forgotten more economic and banking information than I’ll ever learn. He’s also the rare wordsmith who’s mastered the skill of penning a pithy column.
For some reason, I’ve also long had an interest in economic issues and data. I’ve also come to the conclusion many of these reports might not be 100-percent accurate … or even 70 percent accurate.
Dr. Curtis’s excellent and pithy column inspired me to write a longer column on the subject of “manipulated data” at my national Substack.
Disclaimer: This editorial might not be for everyone as I expound on some of my contrarian or politically-incorrect views regarding economic indicators and a Pandemic some people might still recall. My thesis is that more Americans should be skeptical of government data.
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Goodbye rec basketball … On-deck: Baseball!
Another outstanding recreation basketball season in Troy has now come to an end and young athletes are hitting the fields and batting cages getting ready for youth baseball and softball.
This season I was honored to be able to help Coach Jeffrey Griffin coach the 8 and 9-year-old Cavs.
I think our team finished 8-3 (if we count a win in a practice game). Most importantly, everyone had a great time and Coach Griffin made sure everybody on the team got to play the same amount of minutes.
The Cavs definitely improved throughout the season and our players learned some important basketball fundamentals.
As always, thanks to the many volunteers and staffers of the Troy Recreation Department who made these happy memories possible.
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“On three: One, two, three … Cavs!”