A Treatise on the Value of Economic Indicators

The US Economy and Economic Indicators

The United States economy is the strongest and the most affluent in the world. Besides having the highest GDP (Gross Domestic Product), the United States has a complex system of regulating economic policy and controlling the money supply. The system also regulates banks and financial institutions, and even has a central bank (Federal Reserve Bank) that decides on significant issues, such as raising interest rates. There are many economic indicators that affect the economy such as the CPI, which is the measure of prices at the consumer level for a fixed basket of goods and services, and the unemployment rate. Other indicators include the GDP, which measures the dollar value of all the goods and services of a nation, retail sales, and the consumer confidence index (CCI).

The CPI is the measure of inflation, and is released every month by the Bureau of Labor Statistics. Prices are collected in 85 cities across the country on thousands of different products and services from establishments of all kinds. It reflects prices of food, clothi

should be sufficient for economic analysts to predict a resurgence in inflation. However, the recent May 1999 unemployment rate, along with the March 1999 unemployment rate, had been the lowest since the beginning of the fiscal year of 1997. If that's not cogent enough, the average percentage of the unemployment rate from the beginning of 1997 to May 1999 was about 4.64. The May 1999 unemployment percentage is 4.2. Low unemployment means higher risk of inflation. The mode seems to be 4.5 and the median to be 4.6. The wealth effect and the Phillips curve hypothesize that low unemployment means higher inflation. Therefore, the unemployment statistics reveal that inflation is eminent sometime soon in the near future.

According to the data, the CPI has gone up a full 1.2 points in April 1999. One must realize that in a range from the CPI of January 1997 and March 1999, the CPI never jumped over .5 points. It was on April that the CPI leaped 1.2 points and increased seven-tenths of a percent, dangerously high and on the verge of inflating our economy. From the January 1997 CPI to the April 1999 CPI, the average has been 162.225. The April 1999 CPI was 166.2, which is 3.975 higher than the average from January 1997 and including April 1999. Therefore, our group's conviction is that the CPI indicates inflationary pressure and the move toward higher interest rates should be accelerated.

The unemployment rate is also significant in the fact that it measures the percent of the population that are currently not legally employed and are actively seeking employment. Recently, because of the strong, healthy US economy, the unemployment rate was the lowest in peacetime since 1957. Low unemployment correlates to a good economy but it can mean increasing inflation because the workers, who have been working as wages increased, can spend more and drive up prices. More jobs have become available because of economic growth including strong consumer confidence and low interest rates. Too low of an unemployment rate is bad because it will cause inflation due to the wealth effect, which means that people will get richer and richer until inflation sets in. According to the Phillips curve, it was widely believed that as unemployment decreases, inflation would increase. Recently, there has been an anomaly because this theory hasn't been true. This relationship has not been so prominent due to the recession in foreign markets. Recession in foreign markets can cause an increase in the unemployment rate because factories that export goods to other nations will have to cut down on production because people there cannot buy the products. Inflationary pressures caused the Fed to announce an expected rise in increase rates because of high CPI, but the unemployment rate remains almost fixed at 4.3 percent, which is still low, as well as being a factor in inflation.

The fact that the economy is enjoying the lowest unemployment in decades

ng, shelter, fuels, transportation fares, charges for doctors' and dentists' service, drugs, and all sorts of other goods and services that people buy for day-to-day living. The CPI is used by the Federal Reserve to analyze the data and act accordingly to the interpretation of it. For example, on May 19, 1999, the Federal Reserve decided to hold interest rates for now but are debating to raise interest rates in the near future because the CPI increased seven-tenths of a percent, the highest in eight and a half years. There are two types of CPI. The CPI-U relates to the urban workers, and accounts for about 80% of the civilian population. The CPI-W relates to the wage earners, and acc

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