Three economic statistics to keep in mind


November 14, 1999|By Eileen Ambrose

IF YOU FEEL like you're inundated by economic statistics, you're right.

Economists say hundreds, perhaps thousands, of major and minor economic indicators are spewed out regularly.

There's the GDP, PPI, CPI and ECI. There are stats on worker productivity, worker inactivity and worker spending proclivity.

Want to know what Alan Greenspan is thinking? Check the Briefcase Index. (It's good news if the Federal Reserve chairman carries a thin briefcase into a policy meeting; bad news if it's thick.) And tourism can be gauged by the Toilet Bowl Index: the more flushes at hotels, the more tourists.

"You've got one for every fetish in the world," says Alan R. Ackerman, senior vice president at Fahnestock & Co., a New York brokerage.

Thankfully, the average person doesn't have to follow every mind-numbing, mind-boggling statistic. Economists suggest keeping an eye on a few stats to get a handle on where the economy is headed. And that's important for understanding your job prospects or what's going on with your 401(k).

Say, for instance, companies raise wages to attract workers in a tight labor market. If worker productivity doesn't go up, too, then businesses may pass the cost of the raises onto consumers through higher prices. Inflation heats up and the Fed, whose role is to control inflation, raises interest rates. With an increase in rates, investors seeking higher returns have options other than stocks, such as certificates of deposit, into which to put their money. Stock prices then might fall. An increase in rates also raises the yield on new bonds, but causes the price of old bonds, whose returns are fixed at a lower rate, to fall. And some of this may be reflected in your 401(k) statement.

"If you understand the economic context as well as follow the markets, then you tend not to be taken by surprise," says Alan Levenson, chief economist for T. Rowe Price Associates Inc. "You can act proactively if you choose to and, therefore, you don't get that feeling of dropping through an elevator shaft when you look at your statement."

Levenson suggests using statistics as clues to unraveling a mystery. "It's almost like a crime scene. What did the economy do in September?"

So with which clue do you start?

Begin with the Employment Situation report, the hands-down favorite of economists. "Consumer spending is roughly two-thirds of the economy and consumer spending depends on what's going on in the labor market," says James Coons, chief economist for Huntington Bancshares in Columbus, Ohio.

The Labor Department usually releases the report on the first Friday of each month, making it the first government report on the state of the economy for the previous month.

The report is the result of polling 50,000 households on their job situation and 400,000 businesses about their payrolls.

It tells how many people are working, looking for jobs or have given up the search. And it's here you find out about wages, hours worked and what industries have added jobs.

Another key clue, economists say, is the Consumer Price Index, the main gauge of U.S. inflation. The Labor Department report comes out mid-month and shows the change in prices in the previous month for a basket of goods and services in urban areas.

The department canvasses 23,000 outlets nationwide, collecting prices on 80,000 items, including rent, cars, furniture, gas and doughnuts. The index has been updated to reflect changing buying patterns.

The CPI last year, for instance, started giving more weight to purchases of computers and less weight to tobacco. This year, the CPI formula factors in that consumers may buy more or less of an item when prices shift.

The third prime statistic to watch is the Gross Domestic Product, which is the market value of all the goods and services produced in the United States. Put out quarterly by the Commerce Department, GDP measures the size of the economy and any changes show how fast it's growing.

As more information comes out, the GDP is revised. Recently, the indicator underwent a major revision to reflect the evolving economy and GDP figures were restated going back decades.

As a result, the current economic expansion turns out to be stronger than previously thought. At the same time, Levenson says, the speed limit at which the economy can safely grow without triggering inflation has been raised.

"If you understand those three statistics and how they interact, frankly, you might get a Nobel laureate in economics," says Diane Swonk, chief economist at Bank One Corp. in Chicago.

Beyond those statistics, some economists suggest looking at retail sales, which tell how much consumers spend on goods at stores each month. Others recommend looking at monthly housing starts because they have a ripple effect on the economy, influencing employment, lumber needs, appliances sales and much more.

These days, economic statistics seem to be getting greater scrutiny than usual as Wall Street tries to figure whether the Fed will raise interest rates for the third time this year when it meets Tuesday.

Those statistics that don't fall in line with Wall Street's expectations roil the stock market. Stock prices plunged last month, for instance, in part because changes in wholesale prices were larger than anticipated.

Two weeks later, stocks soared on news that labor costs were under expectations.

Economists say small investors should ignore these short-term blips. "The market will have its ups and downs each time data comes out," says Anirban Basu, director of applied economics at Towson University's Regional Economic Studies Institute. "The shrewd investor is a long-term investor."

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at

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