To comprehend economic statistics, it is necessary to understand the framework that forms them: the US business cycle. This cycle normally takes 3-4 years and is directly related to the performance of investments and interest rates. The business cycle begins when interest rates and inflation are low or falling. As demand for credit increases, interest rates rise because more borrowers are competing to get loans. The cycle ends when inflation and interest rates climb high enough to send stock prices down. Watching interest rates helps an investor develop an idea of what it will cost to borrow money and what rates can be earned on cash investments. Three key government economic figures that should be tracked are the US gross national product, the balance of payments, and the index of leading economic indicators. The consumer price index is a measure of the costs of goods and service. The stock market's behavior sometimes gives advance warnings of economic fluctuations.
Full text: Money, May 1989
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