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GUIDE to ECONOMIC INDICATORS, Sixth Edition 01 Econ Indicators 2006 10/24/06 5:14 PM Page i GUIDE TO ECONOMIC INDICATORS 01 Econ Indicators 2006 10/24/06 5:14 PM Page ii OTHER ECONOMIST BOOKS Guide to Analysing Companies Guide to Business Modelling Guide to Business Planning Guide to the European Union Guide to Financial Markets Guide to Investment Strategy Guide to Management Ideas Numbers Guide Style Guide Dictionary of Business Dictionary of Economics International Dictionary of Finance Brands and Branding Business Consulting Business Miscellany Business Strategy China’s Stockmarket Economics Future of Technology Globalisation Headhunters and How to Use Them Mapping the Markets The City Wall Street Essential Director Essential Economics Essential Investment Essential Negotiation Pocket World in Figures 01 Econ Indicators 2006 10/24/06 5:14 PM Page iii GUIDE TO ECONOMIC INDICATORS Making Sense of Economics 01 Econ Indicators 2006 10/24/06 5:14 PM Page iv THE ECONOMIST IN ASSOCIATION WITH PROFILE BOOKS LTD Published by Profile Books Ltd 3a Exmouth House, Pine Street, London ec1r 0jh Copyright © The Economist Newspaper Ltd 1992, 1994, 1997, 2000, 2003, 2006 Text copyright © Richard Stutely 1992, 1994, 1997, 2000, 2003, 2006 Diagrams and extracts copyright © The Economist Newspaper Ltd 1992, 1994, 1997, 2000, 2003, 2006 Additional research Sophie Brown, Carol Howard, Stella Jones, Ulric Spencer All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the publisher of this book. The greatest care has been taken in compiling this book. However, no responsibility can be accepted by the publishers or compilers for the accuracy of the information presented. Where opinion is expressed it is that of the author and does not necessarily coincide with the editorial views of The Economist Newspaper. Typeset in EcoType by MacGuru [email protected] Printed in Great Britain by Clays, Bungay, Suffolk A CIP catalogue record for this book is available from the British Library ISBN-10: 1 86197 974 9 ISBN-13: 978 1 86197 974 6 01 Econ Indicators 2006 10/24/06 5:14 PM Page v Contents List of tables viii List of charts x 1 Interpreting economic indicators 1 2 Essential mechanics 12 3 Measuring economic activity 28 Omissions 30 Output, expenditure and income 32 Prices 38 Putting it in context 39 Reliability 40 4 Growth: trends and cycles 41 Nominal GDP 43 GDP per head 45 Real GDP 46 GDP: output 49 GDP: expenditure 50 Productivity 51 Cyclical or leading indicators 54 5 Population, employment and unemployment 58 Population 59 Labour or workforce 61 Employment 64 Unemployment and vacancies 66 6 Fiscal indicators 71 Public expenditure 72 Government revenues 76 Budget balance, deficit, surplus 79 National debt; government or public debt 83 7 Consumers 85 Personal income, disposable income 86 Consumer and personal expenditure, private consumption 88 Personal and household savings; savings ratio 92 Consumer confidence 94 8 Investment and savings 96 Fixed investment and GDFCF 98 v 01 Econ Indicators 2006 10/24/06 5:14 PM Page vi Investment intentions 102 Stocks (inventories) 103 National savings, savings ratio 105 9 Industry and commerce 108 Business conditions; indices and surveys 110 Industrial and manufacturing production 112 Capacity use and utilisation 115 Manufacturing orders 117 Motor vehicles 119 Construction orders and output 120 Housing starts, completions and sales 122 Wholesale sales or turnover, orders and stocks 124 Retail sales or turnover, orders and stocks 125 10 The balance of payments 127 Accounting conventions 127 Imports of goods and services 131 Exports of goods and services 136 Trade balance, merchandise trade balance 138 Current-account balance 141 Capital- and financial-account flows 144 International investment position (IIP) 144 Official reserves 145 External debt, net foreign assets 146 11 Exchange rates 148 Nominal exchange rates 150 Special drawing rights (SDRs) 154 EMU, ecu, ERM and euro 157 Effective exchange rates 160 Real exchange rates; competitiveness 162 Terms of trade 165 12 Money and financial markets 167 Money supply, money stock, M0 ... M5, liquidity 168 Bank lending, advances, credit, consumer credit 173 Central bank policy rates 174 Interest rates; short-term and money-market rates 176 Bond yields 179 Yield curves, gaps and ratios 181 Real interest rates and yields 184 Share prices and yields 185 vi 01 Econ Indicators 2006 10/24/06 5:14 PM Page vii 13 Prices and wages 187 Price indicators 190 Gold price 193 Oil prices 195 Commodity price indices 197 Export and import prices; unit values 205 Producer and wholesale prices 206 Surveys of price expectations 209 Wages, earnings and labour costs 210 Unit labour costs 213 Consumer or retail prices 214 Consumer or private expenditure deflators 218 GDP deflators 219 Appendix: Useful websites 221 Index 225 Gross domestic product (gdp) and gross national product (gnp) or gross national income (gni), as it is sometimes referred to now, are similar measures of total economic activity. gdp has slightly wider international usage and the term is used in this book to mean either gdp or gnp/gni unless the context makes it clear that the reference is to one in particular. Precise definitions are given on pages 28–29. vii 01 Econ Indicators 2006 10/24/06 5:14 PM Page viii List of tables 1.1 World output and trade 3 1.2 Euro area countries 7 1.3 The former Soviet Republics 7 2.1 OPEC crude oil production and prices 13 2.2 US GDP 14 2.3 Chaining index numbers 17 2.4 When did inflation fall? 21 2.5 Choosing the period for comparison 21 2.6 Annualised and doubling rates 23 2.7 Analysing seasonal and erratic influences 26 4.1 Nominal GDP 44 4.2 GDP per head 46 4.3 Five world cycles 48 4.4 Dominant sectors 50 4.5 Sources of economic growth in industrial economies 52 4.6 Growth of productivity 53 4.7 Peaks and troughs in GDP 56 5.1 Population 59 5.2 Labour force 62 5.3 Total employment 65 5.4 Unemployment 67 6.1 General government spending 76 6.2 General government budget balances 82 7.1 Personal income, outlays and savings in the United States 87 7.2 Consumer spending 91 8.1 Investment and savings 97 8.2 Real fixed investment 100 8.3 Savings ratios 106 9.1 Output by sector 109 9.2 Motor vehicle markets 120 10.1 Imports of goods and services 134 10.2 Exports of goods and services 137 10.3 Trade and current-account balances 140 10.4 External debt 147 11.1 Exchange rates 153 viii 01 Econ Indicators 2006 10/24/06 5:14 PM Page ix LIST OF TABLES 11.2 Currencies in the SDR 155 11.3 SDR exchange rates 156 11.4 Ecu exchange rates 158 11.5 Permanent conversion rates against euro area currencies 159 11.6 Effective exchange rates 161 11.7 Real effective exchange rates 163 12.1 Money supply 173 12.2 Comparative interest rates 177 12.3 Benchmark yields 180 12.4 Yields 182 12.5 Real yields 184 12.6 Share prices 186 13.1 Comparative inflation rates 189 13.2 The world oil market 196 13.3 Effect of a $30 oil price increase 197 13.4 Producer prices (manufacturing) 208 13.5 Hourly earnings in manufacturing 212 13.6 Unit labour costs in the whole economy 213 13.7 Consumer prices 217 13.8 Consumer spending deflators 218 13.9 GDP deflators 220 ix 01 Econ Indicators 2006 10/24/06 5:14 PM Page x List of charts 1.1 Industrial countries’ GDP 6 2.1 Index numbers: illusory convergence 18 3.1 GDP per sector 33 3.2 Domestic spending 35 3.3 Trade in goods and services 36 4.1 US trends and cycles 42 4.2 Total GDP 44 4.3 GDP per head 45 4.4 GDP growth 49 5.1 Growth in the labour force 61 5.2 Growth in employment 65 5.3 Unemployment 68 6.1 General government spending 75 6.2 Budget balances 81 6.3 Net public debt 83 7.1 Consumer spending 90 7.2 Growth in consumer spending 90 7.3 Net household savings 93 8.1 Real fixed investment 99 8.2 Growth in real fixed investment 101 8.3 Gross national savings 105 9.1 Structure of production and sources of growth 110 9.2 Industrial production 113 9.3 Manufacturing sector 113 10.1 Imports of goods and services 132 10.2 Growth in imports of goods and services 135 10.3 Exports of goods and services 136 10.4 Growth in exports of goods and services 138 10.5 Current-account balances 142 11.1 Changes in exchange rates 155 11.2 Changes in effective exchange rates 161 11.3 Changes in real effective exchange rates 164 12.1 Short-term interest rates 177 12.2 Short-term interest rates 178 13.1 Inflation in industrial countries 188 x 01 Econ Indicators 2006 10/24/06 5:14 PM Page xi LIST OF CHARTS 13.2 The Economist commodity price indicator 204 13.3 Changes in producer prices 207 13.4 Compensation per employee in the business sector 211 13.5 Changes in consumer prices 216 xi This page intentionally left blank 01 Econ Indicators 2006 10/24/06 5:14 PM Page 1 1 Interpreting economic indicators An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.
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