Magazine article USA TODAY

How Reliable Are Key Statistics?

Magazine article USA TODAY

How Reliable Are Key Statistics?

Article excerpt

A scan of the newspaper or the evening television news can produce a confusing array of economic numbers: "The GDP Up 4.5% in Final Quarter"; "CPI Rises 2.7%"; "The Dow Drops 65 Points"; "The Fed Raises Discount Rate .5%." What exactly do these economic statistics mean? What impact do they have on you and your pocketbook? Are they reliable? The Institute of Certified Financial Planners provides a guide to a few of the more important indicators:

CPI. The monthly Consumer Price Index reveals the inflation rate in a given period, based on the cost of a "market basket" of goods and services, from food and medical care to clothing and housing. The CPI is critical because changes affect the size of Social Security and pension payments, wages and salaries, and anything else tied to cost-of-living adjustments.

However, it can overstate or understate the impact of inflation on an individual family whose market basket may differ from the government's. The family may have significantly more or fewer medical expenses, for example. Moreover, many experts believe that the CPI's market basket broadly overstates the real inflation rate by as much as 1.5%.

GDP. The gross domestic product, issued quarterly, represents the value of the nation's output of finished goods and services. It is a key lagging indicator of the economy's health. Like the CPI, the GDP's rise and fall affect investor and business outlook.

The discount rate is what the Federal Reserve charges banking institutions for borrowing funds. …

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