Federal Reserve Board of Governors has been seemingly holding
investors hostage as each piece of economic data is released.
Even worse we've been deluged in a sea of economic acronyms.
CPI, PCE, GNP, PPI, GDP, ECI, etc. What do they
all mean and how do they affect how the economy is doing and
where the stock market is going? CPI and PPI are the Consumer
Price Index and the related Producer Price Index. They represent
the cost of a basket of goods at either the consumer or producer
level. If raw materials to manufacturers go up then the conclusion
is consumer prices will increase to cover the increased cost
of materials. An increase in the cost of a basket of consumer
goods is a blatant statement of inflation. The PPI measures
the costs of metal, oil, and lumber along with a number of
other commodities at the wholesale level, but doesn't measure
the cost of services. The PPI report is divided into three
parts covering crude, intermediate and finished goods, with
the finished goods being weighed most heavily. The PPI report
is released on the 11th day of each month at 8:30am. The CPI
measures the price of a fixed basket of goods purchased by
the average consumer. These goods include shelter, utilities,
food, transportation, clothing, medical care, and entertainment.
The CPI is reported monthly by the Bureau of Labor Statistics.
The ECI and PCE are two more items
in the bowl of alphabet soup. The ECI is released quarterly
and is the Employment Cost Index. The ECI is both the cost
or wages and benefits paid employees. Employees may not see
an increase in pay but an increase in the cost of benefits
can push the ECI higher. Higher employment costs can lead
to a serious rise in inflation. The PCE is the Personal Consumption
Expenditure. Personal consumption is all spending on all consumer
goods and service, including durable and non-durable goods.
Purchases of durable and non-durable goods figures are partially
drawn from the retail sales report, which is another indication
of how fast the economy is running. Durable goods are items
expected to last for three or more years. Not to be confused
with the Durable Goods Report, which is yet another report,
highlighting only durable goods purchases and orders for future
delivery by consumers and industry.
The GNP and GDP are the Gross National
Product and the Gross Domestic Product. They are similar but
with some subtle differences. GDP is the broadest measure
of the value of all the goods and services provided inside
the borders of any nation within a year. The U.S. GDP is reported
quarterly by the Commerce Department. GDP differs from GNP
in that it measures output produced in the U.S. regardless
of company ownership. GNP measures the goods built by U.S.
owned companies and consumed in the U.S. regardless of where
it is manufactured. A Ford truck built in Canada and put into
service in the U.S. would increase GNP. A Toyota or Honda
vehicle built in the U.S. would increase GDP, which is the
sum of all goods produced here, but they wouldn't increase
GNP because the production accrues to non-U.S. companies.