1 For other titles in the Wiley Finance series please see www.wiley.com/finance Trading Economics A Guide to Economic Statistics for Practitioners and Students Trevor Williams Victoria Turton This edition first published 2014 © 2014 Trevor Williams and Victoria Turton Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher Wiley publishes in a variety of print and electronic formats and by print-ondemand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with the respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required, the services of a competent professional should be sought Library of Congress Cataloging-in-Publication Data Williams, Trevor, 1957– Trading economics : a guide to economic statistics for practitioners & students / Trevor Williams, Victoria Turton.—1 pages cm.—(The Wiley finance series) Includes bibliographical references and index ISBN 978-1-118-76641-5 (hardback)—ISBN 978-1-118-76631-6 (ebk)— ISBN 978-1-118-76638-5 (ebk)—ISBN 978-1-118-76629-3 (ebk) Finance— Statistics Money market—Handbooks, manuals, etc I Turton, Victoria, 1974– II Title HG176.5.W55 2014 330.01′5195—dc23 2014007150 A catalogue record for this book is available from the British Library ISBN 978-1-118-76641-5 (hardback) ISBN 978-1-118-76631-6 (ebk) ISBN 978-1-118-76638-5 (ebk) ISBN 978-1-118-76629-3 (ebk) Cover image: Shutterstock.com CONTENTS Acknowledgements Introduction Surprise Indices Mapping a New Landscape Note 1 Surveys Surveys and Behavioural Economics Types of Survey Business Surveys Consumer Surveys Conclusion Notes 2 Economic Growth Economic Growth Through the Ages GDP What is GDP? Breaking Down GDP Why is GDP important? How is It Measured? Index Numbers of GDP and the Price Deflators Used in Calculating Them Detailed Breakdown of the GDP Measures A Market Link Components of GDP Conclusion Notes 3 Labour Markets Employment Trends What has Driven the Change? Consequences for Economic Growth Phillips Curve Shows no Durable Trade-Off Exists NAIRU Matters More Employment Measures Why We Measure Unemployment The Nature of Unemployment The Impact of Demographics on Labour Markets Vacancies Changing Labour Patterns The UK in Comparison to Its Global Competitors How do We Extract Value from This? Conclusion Notes 4 Inflation What is Inflation? The History of Inflation Causes of Inflation Earnings/Wage Inflation Price Basket How is Price Inflation Measured? GDP Deflator Why so Many Measures of Inflation? A Focus on the CPI and RPI Why is Inflation Important? Deflation Other Measures of Inflation Targeting How can We Extract Value from This? Conclusion Notes 5 Monetary Statistics Monetary Policy and Inflation Management The UK in a Global Context Central Bank's Role What About the Bank of England? How Monetary Policy Works in the Uk Decomposition of Money Why does Money Supply Matter? Why Is This Sort of Analysis Useful? A Brief History of Monetary Targeting How Do We Extract Value from This? Conclusion Notes 6 Fiscal Indicators A Brief History of UK Fiscal Policy Measuring Government Debt Fiscal Policy Impact and Terminology The Impact of Government on Markets Fiscal Policy and Growth The Data We Should Consider Fiscal Policy in Boom and Bust Market Relevance Bank of England Regains Regulatory Powers What Role Does the Office for Budget Responsibility Play in the Fiscal Policy Process? The Monetary Policy Committee Forward Guidance – Another Bank Innovation The Debt Management Office's Role Comparison of International Debt Fiscal Targets Add Credibility to Debt Reduction How Can We Extract Value from This? Conclusion Notes 7 Global Trade Statistics What Is a Country's Balance of Payments? Why Do We Measure the Balance of Payments? What Does It Mean? The Concept of the Balance of Payments UK Is not Alone in Having a Trade Deficit A Chronic Goods Deficit A Chronic Services Surplus to Offset (Almost) the Trade Deficit The Ever-Changing Pattern of Visible and Invisible Trade Balance of Payments and GDP Shifting Trade Patterns How Can We Extract Value from This? Conclusion Notes Conclusion Be anchored to the data flow Some key points to take away Note Appendices Appendix 1 Surveys CBI Industrial Trends Survey CBI Distributive Trades Survey Notes Appendix 2 Bank of England: Agents' Summary of Business Conditions (January 2014) Appendix 3 Inflation: Contributions to Change in the 12-Month Rate Appendix 4 Voting on Interest Rates by the Monetary Policy Committee – 1997 to January 2014 Appendix 5 Voting on Asset Purchases Financed with central bank reserves by the Monetary Policy Committee – March 2009 to January 2014 10 statistics Mao Tse Tung market surveys, definition measurement standards mergers and acquisitions (M&As) Mexico middle classes, emerging markets Middle East and North Africa migration ‘modern economic growth’ monetarism monetary policies conclusions critique failures fiscal policies Thatcher governments Monetary Policy Committee (MPC) monetary statistics money markets money stock money supply 448 see also M0 …; M1 …; M2 …; M3 …; M4 … monthly CBI Industrial Trends Survey mortgage payments motivations motor trade NAIRU National Health Service Nationwide Consumer Confidence Survey natural disasters natural resources negative real interest rates ‘neoclassical growth theory’ neoliberalism net domestic product (NDP) net lending/borrowing by sector net trade see also balance of trade Netherlands ‘network effect’, herd instincts New Zealand, inflation targeting newly industrialized Asian economies 449 Nissan North East, unemployment statistics North Sea oil North West Northern Ireland Norway notes, money supply OECD Office for Budget Responsibility (OBR) Office for National Statistics (ONS) Official Reserves oil Olympic/Paralympic Games OMOs see open market operations open market operations (OMOs) open markets, globalisation opinions, surveys optimism/confidence levels orders Organisation of the Petroleum Countries (OPEC) Osborne, George 450 other intermediate financial institutions (OIFIs) output see also gross domestic product output indices overseas financial account investment returns net lending/borrowing by sector ‘Paasche’ indices part-time employment trends pensions personal finance, consumer surveys pharmaceuticals industry Phillips curve ‘placebo’ effects plant and machinery investments see also capital expenditure Plosser, Charles PMI see Purchasing Managers' Index politics see also government … 451 population changes portfolios Portugal poverty PPI (Producer Prices Index) prices see also inflation baskets of goods and services ‘law of one price’ quantity theory of money printing money pro-cyclical fiscal policies procurement, business surveys producer prices Producer Prices Index (PPI) product designs, creative destruction theory of economic growth production productivity definition history of economic growth statistics 452 professional employment, labour patterns profit income see also income; returns property rights Prudential Regulation Authority (PRA) public choice theory public sector see also fiscal policies public sector borrowing requirement (PSBR) public sector net borrowing excluding financial interventions (PSNBX) public sector net borrowing (PSNB) public sector net cash requirement (PSNCR) public sector net debt (PSND) purchases Purchasing Managers' Index (PMI) QES see Quarterly Economic Survey (BCC QES) qualitative analysis quality-of-life measures, GDP shortfalls quantitative analysis quantitative easing (QE) 453 history statistics quantity theory of money quarterly CBI Industrial Trends Survey Quarterly Economic Survey (BCC QES) random walks, foreign exchange rates rationality raw materials real disposable income per head recruitment difficulties redundancies regional issues releases of GDP statistics reliability concerns, data flows rents repos (repurchase agreements) Retail Price Index (RPI) retail trade retained earnings retention of staff returns 454 Ricardian equivalence Ricardo, David risk management, globalisation Rogoff, Kenneth Royal Mail pension fund transfer RPI (Retail Price Index) RPIJ RPIX Russia sabbaticals, employment trends sales savings scale of production science and technology Scotland seasonal factors self-employment trends self-fulfilling prophecies self-image sentiments, surveys Service Producer Price Indices (SPPIs) 455 services sector GDP proportion statistics Sheffield Hallam University unemployment measures report sight deposits Singapore small and medium-sized enterprises (SMEs) Smith, Adam SNA93 international accounts system, chained volume GDP measures social issues Solow, Robert Solow-Swan neoclassical growth theory South Africa South East, unemployment statistics South West, unemployment statistics Spain specialisation spirals, inflation start-ups stocks 456 strikes, UK Sub-Saharan Africa subsidies successful economies ‘supplementary target’ of George Osborne, the supplier orders supply services supply-side information, business surveys surpluses surveys see also business …; consumer …; government …; household …; market … sustainability rule of Gordon Brown, the targeting policies taxation see also fiscal policies; income …; value added … Taylor rule technical occupations, labour patterns terminology, fiscal policies Thatcher, Margaret Thomson Reuters 457 trade-weighted index (TWI) trading decisions, surveys training and innovation transactions, quantity theory of money transfers, balance of payments transmission channels, QE transport of goods Treasury Bills Treasury Select Committee trends ‘triple dip’ recessions TV licences, consumer surveys UK see also Bank of England balance of payments conclusions fiscal policies future prospects GDP statistics history of economic growth inflation 458 low wages monetary policies part-time employment trends productivity falls unemployment statistics youth unemployment unemployment see also employment; labour markets definitions ‘hidden unemployment’ statistics world comparisons youth unemployment unit labour costs US utilities industry vacancies, labour markets value added value added tax (VAT) Vauxhall vehicle excise duties (VEDs) 459 velocity of money circulation volumes of sales, consumers surveys Wales wars welfare benefits well-being measures Western Europe, history of economic growth wholesale trade Wilson, Harold world comparisons Yorkshire youth unemployment ‘zero hours contracts’ Index compiled by Terry Halliday 460 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA 461 462