It has long been said that the Wall Street stock market is a barometer of the national economy. This was based on the idea that when stocks go up or down, the general economy follows, and the Dow Jones data reflects this.
The most frequently cited DJ figure is the industrial average, which reports the prices of just 30 firms.
But what of all the other public held manufacturing firms, plus those that are not publicly held, whose stock is not traded on the Wall Street market? Or anywhere else?
Perhaps that particular set of data got its reputation back in the day when manufacturing played a more dominant role in the U.S. economy, before the rise of the many service industries, especially those that rely on computer systems and information networks.
Currently, observers look to the monthly jobs reports issued by the government as a way to measure economic health. However, there are several problems with the idea of using those numbers to measure overall economic health.
One: The unemployment rate comes from a telephone survey of a relatively few households. The information is then expanded to apply to the entire population.
In addition, it counts only those in each household who are eligible for work and are actively looking for work. It does not count housewives who stay home to care for children. Nevertheless, that is a full-time job. Unpaid.
It also does not count students while school is in session, but it does count students during the summer, when students are available for work and are actively seeking work.
Remember that phrase.
Two: The employed figure is based on a solid number, drawn from payrolls kept by employers and reported to government agencies that collect income tax information.
Three: Stock holders rely on the price their shares will bring on the open market, and this can reflect panic buying or selling, totally irrelevant to actual economic conditions.
So what is a good measure of economic health, if not the stock market or monthly jobs numbers?
Try consumer purchases. This reflects both employment statistics and available income. The problem, of course, is that these data are harder to come by, and cannot be measured as often.
Monthly telephone surveys are easier, as well as recording monthly payroll and income reports that are filed with the government. And it's important to remember that these are industry totals, and not always from individual firms. Except, of course, publicly held corporations that report these data to stock holders regularly.
The bottom line, then, from a news perspective, is that the monthly reports are summaries of various hints.
The problem arises when marketers use whatever excuse they can find to raise prices and thus increase profits.
This becomes obvious when gasoline prices jump at the retail pump the same day that political unrest surges at oil producing regions on the other side of the world.
Some economic analysts call this the interaction of market forces.
I call it greed.
And yes, I do have an advanced college degree in economics, as well as 20 years writing on economics for a major daily newspaper.
The most frequently cited DJ figure is the industrial average, which reports the prices of just 30 firms.
But what of all the other public held manufacturing firms, plus those that are not publicly held, whose stock is not traded on the Wall Street market? Or anywhere else?
Perhaps that particular set of data got its reputation back in the day when manufacturing played a more dominant role in the U.S. economy, before the rise of the many service industries, especially those that rely on computer systems and information networks.
Currently, observers look to the monthly jobs reports issued by the government as a way to measure economic health. However, there are several problems with the idea of using those numbers to measure overall economic health.
One: The unemployment rate comes from a telephone survey of a relatively few households. The information is then expanded to apply to the entire population.
In addition, it counts only those in each household who are eligible for work and are actively looking for work. It does not count housewives who stay home to care for children. Nevertheless, that is a full-time job. Unpaid.
It also does not count students while school is in session, but it does count students during the summer, when students are available for work and are actively seeking work.
Remember that phrase.
Two: The employed figure is based on a solid number, drawn from payrolls kept by employers and reported to government agencies that collect income tax information.
Three: Stock holders rely on the price their shares will bring on the open market, and this can reflect panic buying or selling, totally irrelevant to actual economic conditions.
So what is a good measure of economic health, if not the stock market or monthly jobs numbers?
Try consumer purchases. This reflects both employment statistics and available income. The problem, of course, is that these data are harder to come by, and cannot be measured as often.
Monthly telephone surveys are easier, as well as recording monthly payroll and income reports that are filed with the government. And it's important to remember that these are industry totals, and not always from individual firms. Except, of course, publicly held corporations that report these data to stock holders regularly.
The bottom line, then, from a news perspective, is that the monthly reports are summaries of various hints.
The problem arises when marketers use whatever excuse they can find to raise prices and thus increase profits.
This becomes obvious when gasoline prices jump at the retail pump the same day that political unrest surges at oil producing regions on the other side of the world.
Some economic analysts call this the interaction of market forces.
I call it greed.
And yes, I do have an advanced college degree in economics, as well as 20 years writing on economics for a major daily newspaper.
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