Economics Made Simple

The term "economics" may stop some people cold, because they view economics as a complex topic that requires a Ph.D to understand it. Nothing could be further from the trust, if you simplify it enough. By taking a little time to gain a basic understanding of even the most complex topic, you will soon be on your way to maseting it. Have faith in yourself to learn what you need to understand.

Performance of an economy

The performance of the economy is tracked by economic statistics that are released monthly by the U.S. government. Paying attention to a few key statistics can greatly enhance your understanding of economics.

Unemployment report

One of the best well-known economic statistics is the unemployment report released on the first Friday of the month by the U.S. Labor Department. Obviously, if the number of people who are working increases, that is a good situation. The unemployment report is probably the single most important report that is released each month, because the number of people working has an overwhelming bearing on the economic health of a country.

Consumer activity

Another important determinant of a country's economic health is consumer activity. This is typically charted in retail sales figures that are released monthly by the U.S. Department of Commerce. Retail sales figures show consumers' spending levels in the United States, which actually dwarfs expenditures made by businesses.

Consumers create about two-thirds of the gross domestic activity, thanks to the proliferation of credit cards, a decade of relatively low unemployment, and mortgage interest rates at historic lows that have allowed consumers to borrow funds on the equity in their homes and spend the money on purchases of goods and services.

Inflation

Inflation statistics also are closely watched. If inflation heats up and rises above four percent, for example, that can be problematic for the economy. Prices that rise too fast erode the purchasing power of consumers, which reduces spending on goods and services.

If inflation rises, businesses will be hurt, because the Federal Reserve will raise interest rates. That, in turn, will drive up interest rates that businesses have to pay on borrowed funds, which will lower their profits and possibly result in layoffs.