econ 101

A Special Joe Primer

If you get foggy at the mention of interest rates, or bleary-eyed while trying to wade through an article in the Wall Street Journal, we've written this page for you: a bare-bone primer on the major numbers economists throw around.

GDP

GDP (Gross Domestic Product) is the most common number used to show how large – and also how strong - a nation's economy is. It is the dollar value of all goods and services a nation produces, including those produced abroad. Sometimes you'll see GDP per capita – or person – to show how comparatively rich or poor a nation is. GDP growth tells how fast an economy is growing, which – for many economists – is the ultimate sign of a healthy economy.

GDP: $14.4 trillion (2008)  BEA

The current GDP (as of the 2nd Quarter of 2009) is estimated to be $14.4 trillion.

GDP growth over the years

source: BEA

GDP Growth Per Person over the years

Since the nation's population keeps growing, GDP growth per person is slightly less.

source: ERS (excel file)

Inflation and the Consumer Price Index (CPI).

Inflation is the rising costs of goods. The most common way it's measured is the CPI. CPI looks at a “basket of goods” that people generally buy and tracks how much those goods rise in cost. Some inflation is seen as a good thing: "deflation" or "stagflation" (prices going down or staying put) are signs of a slowing economy, whereas "hyerperinflation" (prices rising too fast) can destabilize the economy.

Inflation: 3.4% (2004-2005) BLS

Inflation over the years

source: BLS

Unemployment

Unemployment rate is the percentage of people who are in the workforce (people working or looking for work) who are out of a job. Since jobs are always turning over, a small unemployment rate of 5% is seen as normal and healthy. Some economists, however, say that the unemployment rate is not the best way to track how well theworkforce is doing, because people who give up looking for work or who are accepting lower wages are not included in the tally. See also our unemployment fact page.

Unemployment rate: 4.8% (July, 2006) BLS

Unemployment rate over the years

source: BLS

Job growth

Job growth isusually spelled out in the number of new jobs added to the economy each month/year. Because the workforce keeps growing, the economy needs about 150,000 new jobs a month just to keep even.

Job growth over the past couple of years

source: BLS

Poverty

Poverty startedbeing measured in 1959 to track the number of people who lacked the basic necessities to get by. The current formula used to set the poverty level was developed in 1963; it figures out how much it costs to feed a family and multiplies that number by three, since in 1963 families spent about a third of their income on food.

Critics of the poverty formula come from both sides. The left says the formula underestimates how much it actually costs to live, particularly in more expensive urban areas. The rights says the national poverty figures are at odds with stats that show the poor are living better than they were 30 years ago; they say the temporary status of poverty along with other benefits probably explain why. Also see our poverty facts page.

Poverty rate: 12.7% of all Americans (2005)

Over the years

source: Census

Interest rates

Interest Rates – and the “federal interest rate.” Interestrates, for our readers lucky enough to never borrow money, are the rates a lender charges you when you take out a loan (in any form – student loan, mortgage, credit card balance). The “federal interest rate” or “discount rate” is the rate at which banks borrow from the fed. Although it doesn't dictate how much interest banks charge their customers, it usually has a strong influence – so when the fed's rate goes up, interest rates in general go up too. (But not always – for a good primer on how interest rates work, see the ChicagoFed.)

Primary interest rate: 1%

Interest rate levels over the past three years

source: Fed

Trade deficit

Trade deficits - or the "current account deficit" - happen when a country imports more goods than it exports. Nations generally like to avoid trade deficits – because they have to borrow money to make up the shortfall – but some argue a trade deficit is only a natural by-product of globalization. (Note: the trade deficit is not the same as “the budget deficit” – which is how much more our government spends each year than it raises in taxes. For more on the deficit, see our debt and deficit page.)

Trade deficit: $811 billion (2006) BEA

Trade deficit as a percentage of GDP over the years (the graph shows the "balance of current accounts" - anything above zero is a trade surplus and anything below is a trade deficit)

source: BEA

Where the numbers are from:

  • BEA - Bureau of Economic Analysis

  • BLS - Bureau of Labor Statistics

  • CBO - Congressional Budget Office

  • Fed - Federal Reserve

  • ERS - Economic Research Service

 

Other primers out there:

Did we miss something, let some slant slip in, lose a link - or do you just have something to say? Drop a line below! In the spirit of open dialogue, cJ asks you keep it civil, keep it real and keep it focused on the message, not the messenger. See our policy page for more on what that all means.

Posted In

The U.S. economy as of 2007

The U.S. economy as of 2007 is, overall, surprisingly healthy considering that GDP is at a high and healthy level, unemployment is at a perfectly healthy level, non-farm productivity has doubled in the last measured level compared to what it was expected to be, LEI has stayed the same and may actually point to slow economic growth which shows the stability of the economy in the near future, the trade deficit and trade balance has greatly improved and has dropped to a level that is lower than it is been in quite some time which is fantastic, and Inflation being the only unhealthy indicator is only a bit unhealthy and was expected to have risen from its previously healthy level to its unhealthy current level because with the rise in GDP combined with lowered interest rates brings much more money into peoples hands and in the system causing there to be increased prices to compete with the enlarged money supply thus leading to the increased and current unhealthy level of inflation. Yet, the rise of inflation to an unhealthy level is not too bad both when compared to past levels of inflation which were much higher and the fact that the trade off is that the other economic indicators are doing great especially GDP. Furthermore, it is good considering that because it can be contributed to the loss of the value of the dollar, we have had a resulting decrease in the trade deficit due to other nations buying more of our products at a cost that is much cheaper because their currency is worth much more compared top us and thus increasing our exports and creating more of a balance between exports and imports and decreasing the deficit to a much lower level than previous years.

a random Joe (not verified) | November 24, 2007 - 8:23pm