Essay on AFM Part 1

Submitted By Eric-Brinzenskiy
Words: 2519
Pages: 11

1/26: Measuring Economic Strength

*Weekly summary: Economist, Newsweek
*Daily Periodical: WSJ, NY Times30 minutes a day 1. Print out interesting articles and give to Hugh 2. Ask Questions 3. Rank the news from most important downonly important stories
**Impact on US dollar -National events -Policy -Macroeconomics
**Pay attention to people in news: not CEO’s or analysts

Growth & Inflation=statistics of the strength of an economy
Urate: growth produces jobs
Healthy economy=growth + jobs
Nonfarm payroll breakeven=200,000
GDP: growth & productivity
Growth: output of goods and services produced by labor & property located in the domestic US
Employment: job growth
Why can high growth be bad?
We want high SUSTAINABLE growth
If too high and too fast, we can strip our raw materialsoverheating
Only so much growth until it becomes INFLATIONARY
Negative growthcontractionrecession (2 consecutive quarters of reduction in GDP)
Business Cycle
National Bureau of Economic Research (NBER) states when recessions are
Depression: 10%, 3+ years of reduction of GDP
If sustainable there is nothing wrong with growth
CPI: basket of goods each month
PCE (GDP deflator)
Is inflation bad?
Excessive inflation is bad
UNEXPECTED inflation is bad; expected is ok because everything adjusts
If predictable its ok but if prices increases and not everything else adjusts it’s bad
Volatility of inflation increases inflation=less predictable
More predictable in low inflationary periods
Impacts LT growth of society
Economists desire some inflation because we wont cut your salary but it will stay the same
LT investments are more susceptible to inflation.
LT investments bring growth to economies
Typically inflation and growth are correlated
Growth rate too highvarious resources become scarce
Price of resources goes up
Scarcity of resources impede the growth rate
Prices bid up (inflation) may be a signal that the growth rate is unsustainable
Stagflation: inflation with little or no growth (oil shock); inflation not from growth
Phillips’ Curve
Target inflation rate is 2% for enough growth
Is deflation a bad thing? CONTRACTION
Negative inflationencourages people not to spend (cheaper and better)
No incentive to buy because there is holding value to cash
People get laid off & future spending decreasecontractsDeflationary spiral
Quantitative easing: pushing on string (monetary policy)helps save an economy but it doesn’t help growth
(a) Government spending: countercyclical spending
(b) Exports: work for very cheap $

2/2: ISM Index: pg.181
Institute for Supply Management-National Association Purchasing Managers (old name):
1st business day of the month @ 10 a.m.
Timing is huge
Author: only economic indicator not done by the government
300 purchasing managers for manufacturing facilities
Survey results are from the middle of the previous month
1st economic data that comes out each month
ISM Composite Index (average of 5 surveys): growth gauge that uses mostly manufacturing, a little mining, and equal weights for each one
Production: current GDPmost interesting for growth
New orders (future looking)future growth
Inventory of purchases, raw materials (different from GDP): ramp up and produce somethingfuture growth
Employment: another raw material; measure of current growth
VENDOR DELIVERY SPEED: sustainable growth? (Determinant)
40 slower, 50 faster=45
Durable (car) vs. nondurable (milk)manufacturing can be an engine of growth to a community and serve as a multiplier
Durable=more cyclical (critical for growth); not consumed or destroyed in use; used for 35 years
Nondurable=more stable (used for consumption)
Each category (diffusion index): only gets the direction it is going (not degree)
Stayed the same
For vendor delivery speed, a “slower” vendor delivery speed is “increasing”increasing economy
Diffusion Index: measures proportion of respondents to the survey to answer