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Economic Indicators for Consumers

Source: Federal Reserve Bank of Richmond, Web: www.rich.frb.org/

Investors should follow economic news, since the health of the economy affects individual investments. Yet, sometimes press reports about the economy can be difficult to understand. The Federal Reserve Bank of Richmond has produced a fact sheet, “Economic Indicators for Consumers,” to help you understand the numbers that frequently appear in media reports. The following is a summary.

Output: Gross domestic product (GDP) is the dollar value of the goods and services produced in a specific period. In general, the larger the growth in GDP, the better the economy is doing.

Employment: Payroll employment is the number of jobs in the economy, determined by a survey of businesses. Household surveys generate estimates of employment and unemployment, which taken together represent the labor force, or workforce. The unemployment rate is the percentage of the workforce without a job. People who are not working and not seeking employment are not included in the workforce. Generally, the economy is improving when employment rises and unemployment falls.

Short-term interest rates: Consumer loan rates include the interest rate paid on automobile loans or credit card balances. They partly depend on the interest rates banks pay depositors, and on such factors as defaults on loans.

The prime rate is the interest rate banks charge on loans to their biggest and best customers. Consumer loans, including home equity and variable rate mortgages, are often fixed at slightly above the prime rate.

Savings accounts, certificates of deposit (CDs), or money market accounts pay different rates according to how long the depositor agrees to leave the money in the bank. In addition, U.S. Treasury bills and notes pay interest rates determined at regular auctions.

When banks need short-term money, they can borrow from other banks, paying the federal funds rate. When a bank borrows from the Federal Reserve Bank, it pays the discount rate.

Long-term interest rates: Various factors, including inflation, affect long-term interest rates, including home mortgage rates. The long bond rates are the highest interest rates the Treasury Department pays on bonds (which have terms of ten years or more.)

Annual percentage rate (APR): The APR is a standardized method of calculating interest rates. It permits the comparison of different interest rates just as unit pricing enables comparison-shopping at the supermarket.

Inflation: The consumer price index (CPI) measures the price of a fixed “market basket” of goods and services. The producer price index (PPI) refers to the average price charged by manufacturers for finished goods sold to other businesses. The gross domestic product deflator measures changes in the average price of all goods and services the economy produces. Sometimes inflation is measured by the price of a commodity, such as gold, oil, or wheat.

Sources of Data Useful for Investors

Gross Domestic ProductDepartment of CommerceMonthly
EmploymentDepartment of LaborMonthly
UnemploymentDepartment of LaborMonthly
Prime RateIndividual BanksSporadically
CD RatesIndividual BanksDaily
Money Market RatesIndividual BanksDaily
Treasury Bill RatesU.S. Treasury AuctionsWeekly
Treasury Note RatesU.S. Treasury AuctionsQuarterly or Monthly (for different denominations)
Federal Funds RateFederal Reserve Member BanksContinuously
Discount RateFederal Reserve SystemSporadically
Mortgage RatesIndividual BanksDaily
Treasury Bond RatesU.S. Treasury AuctionsSemiannually
Consumer Price IndexDepartment of LaborMonthly
Producer Price IndexDepartment of LaborMonthly
GDP DeflatorDepartment of CommerceMonthly
Commodity PricesIndividual MarketsContinuously

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