1. A Guide to
Rules & Readings in
“ECONOMICESE”
A Primer on Basic & Generic
Reading ECONOMICS Principles
1

2. Mentally calculating the
Rate of Change
[as a %age]
New(n) – Old(o)
Old(o)
as an example:
600 – 500 = 0.2 = 20%
500
2

3. when considering
What To Look For
• What was originally expected?
• What actually happened?
• If those two (2) components are
different the markets will react.
• How will the news affect the Fed?
3

4. Four Data Adjustments
• consider the Real versus the Nominal
• consider Moving Averages
• consider Seasonal Adjustments
• consider Core Rates of Price
Changes ~ measurement series
excluding the volatile food and
energy sectors 4

5. Gross Domestic Product
GDP = C + I + G + (X-M)
where:
C is defined as Consumption or Consumer Spending
I is defined as Investment or Business Spending
G is defined as Government or Government Spending
X is defined as Exports and
M is defined as Imports
5

6. Gross Domestic Product (2000)
GDP 2000(X-M) = - 3%
Investment = 17.9%
Consumption = 68%
Government = 17.6%
6

7. evaluating:
Economic Growth
calculating the:
Rate of Change
of REAL GDP
7

8. on measuring: Employment
• use the Household Survey to estimate the unemployment
rate
• use the Establishment Survey to estimate the number of
new jobs created
• use the Employment Cost Index to estimate the costs of
labor for business
• use the Initial Claims for Unemployment to estimate the
changes in overall employment levels
• use the Labor Productivity and Unit Labor Costs to
estimate the efficiency of the work force
8

9. Real versus Nominal GDP
Year 1 Year 2 Difference % change
Nominal 220 280 60 27.3%
IPD 110 120
Real 200 233 33 16.5%
9

10. Real Oil Prices
Real Oil Prices
70
60
50
$ per bbl
40
30
20
10
0
49
53
57
61
65
69
73
77
81
85
89
93
97
01
19
19
19
19
19
19
19
19
19
19
19
19
19
20
so ~ read the graph Year 10

11. Real Teacher Salaries
Salaries of California High School
Teachers, Nominal and Real: 1985 - 2003
Nominal Salaries Real Salaries
$60,000
$55,000
$50,000
Salary ($)
$45,000
$40,000
$35,000
$30,000
$25,000
85
87
89
91
93
95
97
99
01
03
19
19
19
19
19
19
19
19
20
20
so ~ read the graph Year 11

12. Real Minimum Wage
Real and Nominal Minimum Wage
1985 - 2003
Minimum Wage ($ per hour) Real Minim um Wage
$5.50
$5.00
Wage ($)
$4.50
$4.00
$3.50
$3.00
$2.50
85
87
89
91
93
95
97
99
01
03
19
19
19
19
19
19
19
19
20
20
So ~ read the graph Year 12

13. Prices
• *Core Producer Price Index ~ the Producer Price Index (the
“PPI”) measures average changes in prices received by domestic
producers for their output. Its importance is being undermined by the
steady decline in manufactured goods as a share of spending
• *Core Consumer Price Index ~ the consumer price index
(the “CPI”) measures changes in the price level of consumer goods and
services purchased by households. The CPI in the United States is defined
by the Bureau of Labor Statistics as "a measure of the average change
over time in the prices paid by urban consumers for a market basket of
consumer goods and services”
• Implicit Price Deflator ~ the implicit price deflator is a measure
of the level of prices of all new, domestically produced, final goods and
services in an economy
* excludes the volatile food and energy sectors
13

14. The Consumer Component
• includes all personal consumption
expenditures
• includes retail sales made within the
economy
• reflects on the Index of Consumer
Confidence measure
• demonstrates how personal income is
spent ~ disposable & discretionary
14

15. Other Market Movers
• any “situation” developing within an oil
producing nation
• any developing conditions of war and
peace throughout the world
• statements by policy makers or officials
• announcements made with respect to the
earnings reports of businesses
15