Consumer spending figures were released early Monday morning prompting many to speculate on what this means for the economy. Although the average income in households across the United States showed the largest rise across the U.S., consumer spending did not reflect a change in December of 2011.
Every time new economic indicators are released to the public, journalists, analysts and economists alike speculate on their meaning and impact. It can be hard to keep up. We decided to look past the actual figures to identify which numbers you should watch.
It seems like there are new percentages and projections coming out every other day. It can be difficult to sift through the important ones, but luckily there is a list of 7 that will always give the clearest vision of where our country stands.
Real GDP (Real Gross Domestic Product)
This simple calculation is one of the most telling indicators of how our economy is doing. The equation is as follows:
value of all goods and services produced in the U.S. – the value of imported goods and services = GDP
The difference between the real GDP and just the plain ol’ GDP is the real GDP takes a look at inflation adjusted numbers used from a 2005 reference point.
The 2011 real GDP increased by $225 billion dollars, which sounds like a big figure but it is a 1.7 percent increase in actuality. The real GDP figures are reported quarterly with the next on coming out February 29, 2012.
Consumer Price Index (CPI)
This is the best indicator of inflation within the economy, it is normal to see this number increase at around 3 to 4 percent at a controlled pace. It’s basically a guide that takes a look at the price changes on a basket of goods used as a base comparison from month to month. The basket covers 8 categories: food, housing, apparel, transportation, medical care, recreation, education and communication, and other common household expenditures.
The goods are weighted in terms of importance and then an average is found. Year-to-year changes are used to indicate cost-of-living price changes.
The CPI is released around the 15th of every month, and looks at a bundle of about 200 goods and services. Although the last CPI report, released on January 15th and recalculated on January 19th, didn’t show a month to month change, the yearly index increased 3%, which is aligned with the normal pace.
The Producer Price Index (PPI) is similar in theory, but the Bureau of Labor Statistics measures price of goods at the wholesale level in order to analyze inflation statistics.
After the first week of each month, the Bureau of Labor Statistics releases the unemployment rate, which is one of the most easily understandable gauges of the economy.
Even though the figures come out the first Friday of every month, it’s best to wait until they are updated and adjusted before you take a crack at analyzing them yourself.
The most recent figures brought unemployment to 8.5 percent, the lowest figure in nearly 3 years. The Friday announcement also includes the number of new jobs created, the average hours worked per week, and average hourly earnings. These figures are calculated by looking at 300,000 businesses across 600 industries, but unemployment statistics cover a greater range of individuals. The next release, due out February 3, will have the first analysis of 2012 with January figures.
Consumer Confidence and Spending
Some think these two are the most important indicators of economic health. Consumer spending has accounted for over three fourths of the nation’s economy at different points in history – demonstrating its importance. Consumers are not likely to spend with low confidence, so those figures are taken into consideration as well.
Consumer confidence is calculated in survey form by polling 5,000 individuals with a total of 5 questions. Although only around 3,500 respond, this is still enough of a representative sample. The figures are released the last Tuesday of each month, with the latest ones showing showing a retreat this January.
Coming out earlier today, the Consumer Confidence Index showed a decrease of 61.1 from December’s 64.8. After two months of gains, analysts expected the figure to increase to around 68 — proving that these numbers and predictions shouldn’t always be taken so seriously.
The most important thing politicians need to focus on is getting confidence and spending up, because these are the two biggest factors to a speedy economic recovery.
What to watch…
There are so many figures that are used to see where the economy is headed, and most of the time they are released on monthly basis. The problem with tracking each and every press release is that numbers often change as more data comes out.
In order to really get a clearer picture of the economy, it’s better to look at a year-by-year comparison. The economic fundamentals show more of where the economy has been, and not so much where it’s going. It’s similar to weather predictions, New York is expected to experience one of the harshest winters – yet there are bright, sunny days when temperatures reach the upper 50s.