Economic Indicators: Variables Of Change

Economic Indicators: Variables of Change

This essay will show the brief history and status on six economic indicators that have been chosen to be represented. The project will be augmented with a PowerPoint presentation illustrating graphical statistics reflecting the current trends and give the audience an idea of what is going on in each indicator. Important to note is that our country has a system upon which the economy operates that encompasses many different variables that are not all necessarily well-known. These variables dictate how the economy will run. These economical dynamics can include the inflation rate, the status of unemployment, among other things that will be illustrated in this paper. The following economic indicators will be addressed in this project:

1. Housing Starts

2. Personal Income

3. Federal Reserve

4. Real GDP

5. Unemployment Rate

6. Inflation Rate / CPI

Housing Starts

In a nutshell, housing starts are the number of residential building construction projects started during a specific period, usually within a given month. This factor is a key economic indicator that provides a timely measurement of construction activity and a natural forecast of future activity.

The Bureau of Census reports on both starts and permits approximately the 16th of each month. Economists can predict the general state of the economy by monitoring this report. During periods following a drop in mortgage rates, there tend to be more permits issued and housing starts (McGraw-Hill, 2000).

The National Association of Home Builders reports that builder confidence has plunged even lower than it was in the first six months of 2007. The reason for this lower confidence is attributed to rising interest rates, the surplus of unsold homes, and problems in the subprime mortgage market. Housing starts have averaged 1.47 million on an annualized basis. The Commerce Department reports that starts continued to weaken, reporting June as 19.4% below the same time last year. Chief U.S. Economist Joshua Shapiro says, "While starts levels might be nearing a trough, they will not recover in meaningful fashion until inventory levels are worked lower."

Personal Income

Personal income is one more economic gauge and along with other indicators, helps to paint a picture of the health of the economy. This factor is income earned by United States inhabitants from any source. For example, disposable personal income is income received after subtracting taxes. Adding the word "real" to income refers to a per capita measurement and is adjusted for inflation. Therefore, real personal income tells how much money each American has on hand for spending and savings.

The Department of Commerce releases numbers each month on this indicator. A positive change in percentage means that more disposable income is available. As a result, the conclusion is that when disposable income is available, the country's standard of living increases (Carter, 2007).

Current information released March 2007 by the Bureau of Economic Analysis from the Department of Commerce reported that income increased by $47.3 billion, or 0.4%. Disposable personal income increased $37.6 billion, or 0.4%. Although incomes of people having ownership in corporations have done well, labor income has struggled at 2Ð'-3% real growth the past few years (The Street Light, 2007).

Federal Reserve

One of the responsibilities that the Fed's incur is to come up with and to conduct a monetary policy. The economy is affected by the monetary policy via the effect to the quantity of the reserves in which the banks will use in making loans. The stimulation of the growth in credit, money, and the economy is due to policy actions that add the reserves to the banking system that creates the encouragement to lower the interest rates. On the other hand, when the policy actions take and absorb this, it will show the opposite results. The main task for the Fed's is to supply enough reserves in which they can support enough money and credit, and to avoid in creating too much excess which will lead into an inflation state to which will hinder the growth of the economy. The Fed's maintain control of the bank reserves due to their operation in the open market, the sale and purchase of government securities. Another way influence is controlled by the Fed is with the money and credit conditions in which they change the discount rate and reserve requirements. An explanation of the discount rate is the discount rate is the interest rate that is created when the banks are paying to borrow reserves from the Federal Reserve Banks (Gibson 2007).

The monetary policy decisions are derived from the Federal Reserve presidents, governors, and directors of the Reserve Banks. The open market operations are overseen every business day by the Federal Open Market Committee whom is made up Fed presidents and governors. Every two weeks the Reserve Bank directors state the discount rate in correlation to the approval of the Board of Governors. Reserve requirements are set up by the board and rarely are they changed. In time the inflation and growth of money is highly monitored. Due to this, the monetary policymakers are in an agreement to have the Federal Reserve must move in eliminating inflation by holding the money growth. The statement in reference to the set goal of the stability of price sets the tone of the integrity that the achievement to help the national economy obtain their goaled objectives of strong growth, high employment, and a balance with the international accounts (Gibson, 2007).

Real Goss Domestic Product (GDP)

The Real GDP and the output of goods and the services that are results of labor and property within the United States have recently increased at a rate of 1.3% in the first quarter of 2007, these numbers based from the estimates released by the Bureau of Economic Analysis. The real GDP in the fourth quarter showed an increase of 2.5%. The real GDP increase in the first quarter was a positive note of the contributions from the personal consumption expenditures along with the local and state government spending that are shown to be differentiated by the negative contributions from the residential fixed investment, federal government, and private inventory investment and the imports increased as well (Moulton 2007).

Unemployment Rate

To be classified as unemployed,