Economic Indicators - Kayla Bruun on the Markets Radio

Inflation

Inflation is an economic term describing an overall increase in prices of goods and services over time. It can have a detrimental effect on the economy, impacting consumers, businesses, and government programs alike.

In general, inflation is caused by an imbalance between two economic forces: supply and demand. The greater demand for a product or service from consumers or businesses, the higher its price will likely be.

Alterations in the price of raw materials, like oil, can also have an effect on pricing. When oil costs increase, manufacturing companies may have no choice but to increase their prices for products using it.

Consumer spending power declines, leading to reduced profit margins and revenues for businesses. This poses a major concern for investors since it could mean reduced stock-price growth and lower earnings.

A low, steady or predictable level of inflation is generally regarded as beneficial for an economy. In the past, inflation has been linked with increased GDP growth.

However, high levels of inflation can have devastating effects on markets and economies. They erode purchasing power, which is why investors tend to avoid stocks when inflation expectations are high.

Inflation can be hard to forecast and often results in an increase in interest rates. Fortunately, the Federal Reserve has several tools at their disposal for combatting inflation; such as increasing interest rates and decreasing asset holdings.

In times of high inflation, those whose wages don't keep pace with prices can feel the brunt most acutely. Typically, pensioners and those on lower salaries are particularly hard hit by this condition.

Thus, they are forced to live with less money and cannot purchase the things they used to be able to buy. This makes it harder for them to save and invest, too.

Inflation can have a devastating effect on the economy by devaluing savings and investments, potentially leading to low investment returns for some investors. That is why it is recommended that investors diversify their investments across various sectors and asset classes.

Jobless Claims

Jobless claims are an important indicator of the economy and have a major effect on financial markets. Released weekly by the US Department of Labor, these figures give an accurate representation of how well-run the labour market is. They are divided into two main categories: initial jobless claims and continued claims.

Initial jobless claims are an indicator of how the labor market is doing, as they indicate new people who have filed for benefits in the previous week. Generally speaking, a higher number of claims could indicate weaker demand in the labour market than expected, which could potentially have negative repercussions for the economy and lead to reduced consumer spending.

On the other hand, continuing jobless claims are a lagging indicator that indicates how many people are still receiving unemployment benefits after having been unemployed for some time. If this number keeps on rising, it could indicate that conditions in the labour market and economy are not improving. This could have an adverse impact on stock markets and reduce consumer spending.

When looking at jobless claims, one must factor in that there are seasonal effects to the data. In the spring and summer months, numbers tend to spike dramatically; however, these numbers are usually adjusted so there are no significant increases during these times.

It is essential to be aware of this risk as it can give investors an unwarranted sense of security and lead to confusion. Fortunately, the seasonal adjustment in this data has a beneficial effect; it keeps the numbers from skyrocketing too high during times of economic stress.

A low reading of jobless claims can be seen as a positive indication that the economy is doing well. This could be beneficial to stocks and lead to increased consumer spending. Conversely, a high reading may be taken as evidence that economic conditions are weaker than anticipated.

GDP

GDP (gross domestic product) is one of the key economic indicators used to gauge a country's health. It serves as an invaluable guide for policymakers, investors, and businesses alike.

A country's GDP is composed of various components, such as government spending, business and consumer consumption, investments, and net exports (exports minus imports). Gaining a better grasp on these numbers will allow you to gain insight into the economy and make informed decisions in your professional life.

No matter your background, understanding GDP is a necessary trait for global business success. While this metric can be complex, with some research and practice you will be able to use it as an invaluable tool in future decision-making processes.

Consumer spending is the primary component of a country's Gross Domestic Product (GDP). This includes both durable and nondurable goods like clothing, food, and healthcare services.

Another element is investment, which is a form of private domestic investment that enhances economic productivity and creates employment opportunities. Such investments could include machinery, construction projects, or new buildings.

Finally, GDP includes government spending - an indicator of how well a country's citizens are taken care of with basic necessities. This data can be valuable to politicians and policymakers when determining how much money should be invested into public services.

However, it's essential to remember that while GDP can be an accurate measure of a country's economic health, it doesn't tell the full story. It ignores factors like environmental damage and reduced leisure time - both of which affect people's overall well-being.

GDP remains one of the most critical financial indicators to keep an eye on, despite its limitations. It plays a critical role in many countries and has a major influence over global economic activity.

When the government releases GDP data, it often has a positive effect on stock markets. Traders are more likely to invest in the market if they believe it's secure for their money; however, if the GDP rate goes down, traders may start doubting whether the economy is improving and may start investing elsewhere.

Interest Rates

Interest rates are a crucial element that can have an immense impact on both the economy and your wallet. They determine how much you will pay when borrowing money, as well as the amount you can earn by saving.

Lenders typically charge you an interest rate based on the principal, or total amount lent, plus your credit score, debt-to-income ratio and other factors. In some cases, this rate could also be a percentage of the borrowed amount.

That is why it is essential to comprehend interest rates and their workings, so that you can make educated decisions regarding your financial future. Whether buying a home or paying off college debt, interest rates play a significant role in how much money is necessary for spending.

In a free-market economy, interest rates are determined by the demand and supply of credit. This means that if there is an abundance of people looking to borrow money but there is not enough available, the cost of borrowing will go up.

Companies whose operations depend mainly on borrowing, such as banks, can experience an immediate effect from changes in interest rates. This is especially true during periods when the economy is weak or facing a recession.

Certain companies fare better when interest rates change than others, however. Examples include companies in the energy, utilities and consumer staples sectors.

Other businesses that could benefit from higher rates are insurance companies. They will receive extra income when borrowers have to pay more on their premiums.

Finally, asset managers can benefit from higher interest rates on their money market funds. This is especially true in times when the government's interest-rate cap has been lifted as they must now pay more to investors for their money.

It is worth noting that even the most vulnerable sectors of the market can continue to do well despite rising rates. This is because certain industries are less vulnerable than others and companies who have diversified their business models or built loyal consumer bases will continue selling goods and services.