Reading an economy
3 numbers tell you how an economy is doing: growth, jobs and inflation. What each one measures, and what it says about the next central bank move.
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In this video
- Growth is measured with GDP. Traders watch the change against the quarter or year before, and real GDP takes inflation out.
- Jobs: the unemployment rate, the US jobs report (non-farm payrolls) and job openings. Job losses cut spending, and that cuts more jobs.
- Inflation: CPI tracks what households pay, PCE is the measure the Fed prefers, and PPI tracks producer costs and often moves first.
- Surveys such as the PMI come out sooner than hard data and often hint at a turn first.
Next videoMacro FirstWhere money comes from1:43Most money today is lent into existence. How credit creates money, why that makes economies move in cycles, and what it means for markets.
Key terms
- GDP
- Gross domestic product: the total value of everything an economy produces. The broadest measure of growth.
- NFP (Non-Farm Payrolls)
- The monthly US jobs report. It counts how many jobs were added outside farming and is one of the biggest market-moving releases.
- Inflation
- The rate at which prices rise. Central banks usually aim for about 2% a year.
- ISM and PMI
- Surveys that ask purchasing managers whether business is getting better or worse. Above 50 means expansion, below 50 contraction. A leading indicator.