• From economic statistics information point of view the US is the most data-rich economy in the world. 

• Release of data is strictly controlled (reporters given access to them are locked in a room for 30 minutes before being allowed to go out) and only a few chosen people inside and outside the government have access. It did not use to be this way in the past and high up official benefited by getting their hands on reports before they were made available to the public. Some made millions on the stock and bond market and others (including president Nixon) used them for political purposes.

• Economic indicators fail to paint a black-on-white clear picture of how the economy is doing or where it is heading. There is no one indicator that can give us sufficient information that we can use to make financial predictions. Partly this is because humans very often behave counterintuitively. Take the consumer sentiment index for example, back in 2001 consumers were very pessimistic about the US economy and yet they continued loading up on debt by spending on cars, houses and holidays.

• Indicators have a few important qualities that we can take into account when assessing their importance. Most of them are based on results from public surveys

  • Accuracy - aka how reliable is the survey. In order to get the most up to date data for CPI, the government's Bureau of Labor Statistics polls 5000 households to find the price of 80k items and services at 26k stores around the country. If an indicator has a history of large revisions then it is not considered very accurate and has a lesser effect on the financial professionals' opinion on the economy.

  • Timeliness of the indicator - how up to date the data it uses is

  • The business cycle stage - Depending on the business cycle stage of the economy (peak, recessions, trough, recovery, expansion), some indicators are being paid more attention on compared to others. During recessions housing starts, auto sales and stock market indexes have bigger importance. During economic expansion CPI, job statistics and ISM take a more central stage.

  • Predictive ability - indicators with better ability to predict economic changes.

  • Scope of interest - some indicators are more important to bond traders(CPI), others are more important to investors(customer spending) and other to politicians(GDP). Those in the forecasting business want to know the what is known as "leading indicators" - ISM purchasing managers reports, initial jobless claims, building permits and the yield curve.

• Since globalisation kicked into full steam some years ago International economic indicators have grown in importance. US is indeed the biggest economy on the planet but most of its companies do business on the international stage. Also, foreign countries own a significant amount of US Treasuries, equities and corporate bonds. If, say, the UK went into recession and people needed to pull money out of financial tools that would have a grave effect on US equity or bond prices.

• Definition of economic terms:

  • Annual rate - monthly rate multiplied by 12

  • Business cycle - easily explained by human behavior. People get overly excited, relax, then get depressed. The business cycles are - Peak, Recession, Trough, Recovery, Expansion ... Peak. Recessions last between 6 months to a few years and are defined by "Two consecutive quarters(6 months) of negative GDP growth." and is declared by the National Bureau of Economic Research(NBER) which is a non-government non-partisan think tank based in Massachusetts. Since 1854 - 33 business cycles with average recession lasting 18 months.

• Consensus surveys - subject matter experts being surveyed to get the most up to date opinion on certain parts of the economy. The responses of individual business economists get averaged out and the becomes the consensus forecast.

• Moving average - Relying on a single month's data can be rather misleading since that data can be skewed by an unusual event. Simply put moving average is a computation in constant motion because it always averages data for the most recent fixed number of months which changes with the introduction of data from the most recent month. The usefulness of moving averages is that is smoothens out the interference from random fluctuations. On the down side it is a lagging indicator.

• Nominal vs Real data - Nominal data is just the raw numbers in the. Real data is inflation adjusted and more useful in certain situations.

• Revisions and Benchmark changes - Revisions exist to update the data for previous months in order to present more accurate statistics. Benchmark changes introduce new sets of data or formulas used for calculating the final outcome.

• Seasonal adjustments - Economists analyse historical data from the past 5-10 years and try to identify recurring trends (end of university year - a lot of students get a summer job so employment goes up, car factories get updated in July so productions falls

How the Global Financial Crisis Unwrapped

• 1. Americans were on a shopping spree for years as interest rates were low

  2. Debt was on the rise and a lot of countries lent to the US

  3. China kept its currency artificially low and generated massive trade surpluses(exports exceed imports) and with its vast amounts of $ it loaded up on US Treasuries

  4. Hunger for high returns forced banks and financial institutions to bundle up high risk mortgages in high return products which rating agencies (Moody's and Standard and Poor's) rated as AAA (highest quality investment rating). 

  5. High demand for those "high quality" products motivated banks and mortgage advisors to basically commit fraud and get people signed up for mortgage without any background checks for income or credit. This in turn initiated the bubble inflation

  6. The FED rate was slowly increased from 1% in 2001 to 5.25% in 2006 which resulted in high monthly mortgage payments on those of the Americans on variable rates

  7. People could no longer afford to pay extortionate amount of money for their homes and abandoned ship.

  8. The high-returns mortgage products sold to investors turned worthless overnight

  9. The bubble burst causing companies going under, banks going bankrupt, people losing their jobs and homes

  10. Long story short ... human greed caused the Great Recession of 2008/2009

Economists say that roughly 150 000 people join the workforce monthly and estimate that the GDP needs to expand at 3% to 4% to support the new job market entrants.