Economics for ordinary people

I write a weekly economics preview for the Mail & Guardian Online. Every Monday morning, before South Africa’s markets open, I preview the noteworthy economic events and data releases likely to generate headlines and move markets in the week ahead.

The economic events that I cover vary significantly from one week to the next. One week, a meeting of European leaders might be the big story. The next week, a rates decision by the South African Reserve Bank may be the thing to watch. The week after that, a budget fight in the United States may be the concern.

Some of these events, like central bank meetings, occur on a regular basis. Others, particularly those stemming from an emergency, like Europe’s debt crisis, are less predictable. In either case, I try to give readers a brief background to the event and my best estimate of likely outcomes, based on the collective wisdom – or folly – of informed experts, past experience with similar circumstances and other well-sourced news reports.

The economic data releases I cover are, by definition, much more predictable. With very few exceptions, release dates are set well in advance. Analysts make predictions about what data is likely to show and markets price in their expectations for a rise or fall in a particular set of figures.

Each Thursday, for example, the United States government releases weekly jobless claims numbers. Economists and analysts in think tanks, academia, banks and other institutions make predictions about whether the jobless claims will increase or decrease. Wire services and other data providers – like Dow Jones Newswires, Bloomberg and Market News International – publish consensus forecasts. If the report comes out better than expected, stock markets generally rally. If the numbers disappoint, markets generally drop.

By reporting historical figures and consensus expectations for future numbers, I believe I’m providing a useful service to individual investors. The big guys have access to all sorts of sophisticated econometric forecasting tools and expert analysis. The little guys do not. My hope is that my articles help to prevent this second group from getting blind-sided by unexpectedly bad (or good) data.

I find this exercise interesting and useful, but also frustrating. It’s the space constraints that kill me. By covering the numerical details of the releases in question I have little space left to explain what the data actually measures, what movement one way or the other means for the economy as a whole and why the general public should care about some abstract piece of economic data, like durable goods orders.

This might not be a problem for most people, but it’s a problem for me. Every Sunday, I watch with dread as the little word counter in the corner of my computer screen ticks ever closer to my self-imposed 1100 word limit.

I’m an economic proselytiser, you see. Not because I’m enamoured with esoteric statistics, but because I believe that broad economic literacy is essential to democracy. The booms and busts of the economic cycle matter, not just to investors, but for all of us.

Most people think that the economy is an indecipherable mess. Prices increase, interest rates rise and fall, property values shoot all over the show, retrenchments happen and businesses close. Most of us have absolutely no idea why and certainly don’t see it coming. Dear readers, I’m here to tell you that it doesn’t have to be this way!

The economy is, admittedly, tough to understand and the future is impossible to predict. But the economy does send out clues, thousands and thousands of them, every day. If you know how to read these clues, you’ll find the economy much easier to understand. Stock market movements, exchange rate fluctuations, interest rates decisions, price rises, wage freezes and a host of other economic phenomenon will be much less mysterious.

That, my friends, is the point of this blog. I know it took me a long time to get there, but that’s the rub of it.

After a few introductory entries, I plan to use this space to provide a detailed explanation of a different economic indicator each week. If you want numbers, read my articles. If you want background, stick with the blog.

I’ll make a few promises to you in advance. One: I won’t be boring. If I am, call me out on it. Two: I’ll pick indicators that really do matter. Novelty will count for nothing, usefulness for everything. Three: I’ll only quote experts who speak plainly and clearly. This will be a jargon-free zone. Four: I’ll try to adapt to meet your needs. If you have specific questions, pipe up. I’ll do my best to answer them or track down those who can.

Next week I’ll write a brief overview of business cycles and an introduction to economic indicators, so come back. This is exciting stuff!