Understanding the Economics Dashboard… or exactly what data is important?

Adam Keily: [00:01:24] Welcome or welcome back to comedian versus economist. It's everything you've ever wanted to know about the economy, but you were too bored to ask invest with a handle on the bigger picture. My name is Adam and as always, I'm joined by my brother Thomas, The Economist. Hi, Thomas. [00:01:38][14.2]

Thomas Keily: [00:01:39] Hi, Adam. [00:01:39][0.3]

Adam Keily: [00:01:40] Good to be here again. Good to have you back. Look. I'm skeptical about this episode, but you wanted to talk about the economics dashboard, as you called it. I wanted to talk about UFC, but this is the boycott. We probably go with your idea. So what do you make of that? What's the economics dashboard? [00:02:00][20.5]

Thomas Keily: [00:02:02] Yes, I kind of thought it might be useful. Like we get a lot of data in the news on Twitter wherever young people are getting their news these days. I hear it's not the seven o'clock news [00:02:15][12.9]

Adam Keily: [00:02:17] that was clarified. Last key takeaway from last week. Yeah, that's what I learned. Nobody's watching the seven o'clock news. Yeah. [00:02:25][7.6]

Thomas Keily: [00:02:25] So there's a lot of numbers out there. And I think it feels overwhelming using there are all these numbers. I have no idea how to fit them all together. What do I mean [00:02:35][9.6]

Adam Keily: [00:02:35] overwhelming or boring? Tomato. Tomato. Well, I think most people, myself included, would just ignore most of this data that you talk about, whether it's out of throw some data at me, GDP yet ignored it. Yeah, well, but it's easy to ignore it is because it's easier to kind of hear these words being bandied around on the news. And you just kind of go, I guess I very much live my life by that kind of mantra. That was the earlier mantra. It's but it's the philosophy that eventually I'm just going to find out if it if I really need to know. And if I don't, then I can probably live blissfully ignorant. [00:03:20][44.5]

Thomas Keily: [00:03:22] Wait till in an emergency the actually. That's the philosophy yet. Yeah. Good life direction [00:03:28][6.0]

Adam Keily: [00:03:28] Well, what do I care? Tell me what is the data and why do I care. [00:03:34][5.5]

Thomas Keily: [00:03:36] we sort of cover what, why do we care about the economy as investors or as consumers or as citizens of the nation. A bit last week, what is sort of wanted to do with this is it's really just a simple framework for understanding everything that you hear and finding a way that it all tacks together. And I think a reason why it feels overwhelming, boring is that we just don't understand. There's no context for these numbers. These numbers come and ask them what does that mean? But if we have a bit of a simple framework for understanding how these things fit together, then that helps us start to take an interest in and understand the different numbers and the insight that those numbers give us. And then that then helps us be a better investor, be a better social citizen, whatever we want to do in our engagement with the economy. I mean, [00:04:26][49.8]

Adam Keily: [00:04:27] so I mentioned the dashboard. They're your words. You called it a dashboard. This is where this is the dashboard where all these numbers live that you're talking about. You haven't yet would say what the numbers are. [00:04:36][8.8]

Thomas Keily: [00:04:36] Yeah. Yeah. OK, so imagine imagine a dashboard. There's there's two halves to the dashboard on one half there is activity and on the other half there's prices. So let's explain those a little bit. So basically we're on the activity side. We're interested in all the stuff that's going on in the economy. [00:04:54][18.8]

Adam Keily: [00:04:55] Reva's per minute. [00:04:56][0.5]

Thomas Keily: [00:04:56] Ren per minute. Yeah. What's being created? How much of our productive resources are being used? [00:05:02][5.4]

Adam Keily: [00:05:02] What side of the fuel tank on. [00:05:03][1.1]

Thomas Keily: [00:05:06] Ah, yeah, that's right. So that's our activity side. So it's what's happening in the economy. It's all all the economic activity. Right. And there's a cluster of sort of gauges on that side of the dashboard. On the other side of the dashboard is our prices. And this is all the price levels for everything in the economy and the different things we're interested in there. And there are four gauges there that are particularly interesting to us. [00:05:32][26.2]

Adam Keily: [00:05:32] So let's start with the activity side then, before we get before. Before we go before we'll start enjoying ourselves too much with the dashboard analogy. What's what's the activity? All of that. [00:05:44][11.1]

Thomas Keily: [00:05:44] Like I said, activity we can really break down. We're good. Yeah. Yeah. There are really two things we're interested in. One is GDP. So this is what our economy is producing in any given year. Yep. OK, so. Yeah, so that's all the stuff that we're creating and we're interested in that because GDP feeds through into company profits and the outlook for share prices, it feeds through into job creation and how many people have jobs, it feeds into wages and where the wages are going up or down or whatever. And so that's why we're interested in in GDP. [00:06:18][34.3]

Adam Keily: [00:06:20] Right. OK, we say we. We need to work harder. I really thought I thought if I brought it back to cause you got just say wait and assume that everyone's on board, I think I think you're interested. [00:06:33][13.4]

Thomas Keily: [00:06:34] Yeah. So you're in a car. There's a dashboard. Koenen McGregor is in the passenger [00:06:40][5.6]

Adam Keily: [00:06:42] McGregor that is named Connor. Connor, Connor McGregor is easily the biggest star in the history of the world. Well, I'm sure he hasn't written any economics books, but. [00:06:59][17.4]

Thomas Keily: [00:06:59] I read his analysis it's rubbish. [00:07:03][3.5]

Adam Keily: [00:07:06] Into trash talking. Yes. Actually, that's a podcast I'd love to watch or to listen to is Conor McGregor vs economist? Yeah. [00:07:19][12.4]

Thomas Keily: [00:07:19] So just hope I'm just holding your interest. [00:07:21][1.3]

Adam Keily: [00:07:21] Yeah, I'm back. I'll be back soon as we go through the week. We're going to start doing about we'll start talking about activity again. It's not a roundhouse cuz. It's more of a what is it. What's, what's your activity. GDP or anything else. [00:07:37][16.1]

Thomas Keily: [00:07:38] OK, so the second, the second gauge on that half of the dashboard is unemployment. Right. So we interested in the unemployment rate. How many people don't have jobs? And that's what. And so there are two key measures and it's really only two key measures on the [00:07:53][15.4]

Adam Keily: [00:07:54] of like you did hit here that I think as a percentage. Right. With unemployment, what's achievable? What like what's the gold standard in unemployment? Like, if we like, is it zero? Can we ever get to zero percent unemployment or is there like is the government just like that's a pipe dream? That's never going to happen? Yeah. [00:08:11][16.9]

Thomas Keily: [00:08:11] There's there's a concept in economics called full employment. And this is the idea that this is the optimal, optimal level. And there's sort of an idea that at any given time, you're always going to have about five percent unemployment. It's sort of unavoidable. There's just churn in the labor market. People are losing jobs, finding jobs at any given point in time, about five per cent is a bit is the best you can do. That's that sort of points to an economy running at full capacity. Right. [00:08:39][27.2]

Adam Keily: [00:08:40] But it's not this is classic economists' tactics. It's like when the RBA says the floor of the of the interest rate is four to five. And then we recorded this early November, what whatever this week on a sense that we can get a little bit lower where [00:08:54][14.1]

Thomas Keily: [00:08:56] the Australian people just push for a better deal. But can you do any better than point twenty five? [00:09:00][4.7]

Adam Keily: [00:09:03] Yeah. I mean, public threatened to switch banks from the Reserve Bank has [00:09:10][6.7]

Thomas Keily: [00:09:10] got a manager is not going to like this. But I can give you a point [00:09:12][2.3]

Adam Keily: [00:09:13] one percent levy manager. Do the whole oh. Used car salesman. Sure. Right now that's true. I like you know, economists say full unemployment. I mean, full employment. If I gave you a cup and I said to fill that cup with water and you gave it to me, Sande's five percent of the cup, I would like not food if I gave you a cup that was [00:09:37][24.0]

Thomas Keily: [00:09:37] one hundred percent for would be spilling on your pans like I was to give me that. [00:09:41][3.8]

Adam Keily: [00:09:41] And so I gave it to [00:09:41][0.9]

Thomas Keily: [00:09:42] you gave me too much. So I want a ninety-five percent. [00:09:44][1.9]

Adam Keily: [00:09:45] That was implicit in what I said. The people don't know what they want us to say, don't know what they want us to do and move on. [00:09:57][11.8]

Thomas Keily: [00:09:59] But anyway, the point is, is on this side of the dashboard, there's only two things that we're interested in. These are our headline gauges. They're headline numbers around that. We have a whole bunch of what we call partial indicators. And these are things that help us get a bit more insight into these big numbers. So like GDP, you might then go to the Consumer Confidence Index, and that tells you whether how consumers are feeling. That tells you whether they're going to be increasing retail spending. That tells you where the GDP is going to get up. So consumer confidence is a partial indicator of GDP. And so everything we hear about the data that's on the activity side, if it's not GDP or unemployment, it's we can think of it as a partial indicator, as something that's helping us get a bit better understanding of those sorry. [00:10:47][48.5]

Adam Keily: [00:10:47] You got a message to them, so I will just play it. Yeah. Excuse us. This is we've tried to be professional, but it's hard to get good help. Never work with animals, pets or economists. As I say [00:10:59][11.4]

Thomas Keily: [00:11:00] now it's just mum. She says I'm killing it. [00:11:02][1.4]

Adam Keily: [00:11:04] Where were you? Were you. I was about seven that. Yeah. So Conor McGregor's life, what about the other side of the dashboard? Thomas. I'm glad you asked Conor. [00:11:18][13.8]

Thomas Keily: [00:11:18] Yeah, I guess so. The other side is prices. [00:11:21][3.0]

Adam Keily: [00:11:23] Right. Hang on. Just to wrap on the first side of this, this mysterious dashboard. So we've got yeah, we've got activity that's made up GDP and unemployment and then we can measure those things through like the happiness index or whatever it is. It wasn't [00:11:39][16.4]

Thomas Keily: [00:11:40] no consumer confidence [00:11:40][0.8]

Adam Keily: [00:11:43] I think Finland winning the happiness index. Right. Consumer confidence. So cool. Yeah. [00:11:50][7.1]

Thomas Keily: [00:11:50] Got it. Yep. So basically like, yeah, you hear a lot of stuff in there and people are inventing data all the time. But really this is really what we're interested in on the activity side from an economic point of view, on the prices side, there's four gauges there on the pricey side, if you can picture that one is interest rates. So this is what the RBA is setting. Well, the banks are setting and interest rates you can think of as the money, [00:12:17][26.4]

Adam Keily: [00:12:17] the RBA interest rates here. [00:12:18][1.4]

Thomas Keily: [00:12:19] Yeah, you can normally understand what's happening in all interest rates by understanding what's happening with the RBA interest rate, because that's sort of the base level. And when the base shifts, everything else shifts around it, depending [00:12:29][10.6]

Adam Keily: [00:12:30] on who you're depending on who you with. Much more or less. Yeah. Yeah. Like if you've got a home loan for example. [00:12:35][5.3]

Thomas Keily: [00:12:36] For example. Yeah. Yeah, yeah. Basically the more riskier it is the higher the interest rate you get. But you can think about the interest rate as the price of money. That's what money costs. Right. If you want to go to a bank and you want some money, that's the price you gotta pay. You got to pay the interest rate. [00:12:50][14.0]

Adam Keily: [00:12:50] OK, first one, interest rates, interest rates. [00:12:53][2.6]

Thomas Keily: [00:12:53] Yet the second gauge [00:12:54][1.0]

Adam Keily: [00:12:54] is actually making notes. If that was that sounded very much like note-taking going on over here, OK. Interest rates. Got it. Just staring at a water bottle. Right. This me, your dad teaching me math. Yeah. Yeah, I'm having that flashback as well. So then this plus this equals this, right? And I was like, yes. So then this plus this time this. You get this right. I will like it. Yes. So then if you get this and then these times this plus this equals what I know. I was just angry because I thought that's where you want to be. I gave it a good crack. Did it, did you really try to get me into it and you just couldn't anyway. So I got we got interest rates. I did remember that. [00:13:46][51.8]

Thomas Keily: [00:13:47] Yeah, right. Interest rates, interest rates, price of money. Then we've got inflation and this is the price of stuff, price of goods and services in the economy. And that's sort of what's happening to the price level of things that we buy, whether it's going up and how quickly it's going up. [00:14:03][16.7]

Adam Keily: [00:14:04] Like how can you mean like do they do it? Because when I'm measuring iPods at one point, like the iPod was kind of like the universally recognized cost of something. [00:14:14][10.2]

Thomas Keily: [00:14:15] I don't know about that exactly. [00:14:16][1.2]

Adam Keily: [00:14:18] What is so funny about the iPod index? The iPod index could be as [00:14:23][5.2]

Thomas Keily: [00:14:23] a sign that people make stuff up all the time. It's not a thing anymore. I tell you that. [00:14:27][3.5]

Adam Keily: [00:14:28] No, everyone's got iPhones, [00:14:29][0.9]

Thomas Keily: [00:14:30] iPhone, and it's probably an iPhone index is a Mac. [00:14:32][1.8]

Adam Keily: [00:14:33] I just realized that I'm sounding really old now because I reference an iPod. [00:14:36][3.4]

Thomas Keily: [00:14:37] There's a whole generation like, what's grandpa thought? [00:14:37][0.0]

Adam Keily: [00:14:43] OK, so so we measure the price of things, this index. [00:14:48][4.4]

Thomas Keily: [00:14:48] Yeah, it does. A sample gets priced measures of all a bunch of stuff. They do a bunch of techniques that try and balance out the shifting quality of stuff over time. I was going to say because I mean [00:14:58][9.4]

Adam Keily: [00:14:58] all that stuff changes that, you know, there's about four hundred different kinds of bread you can buy. [00:15:02][3.6]

Thomas Keily: [00:15:02] Yeah, yeah, yeah. Now it's a big job. [00:15:04][2.4]

Adam Keily: [00:15:05] there under that. [00:15:06][0.4]

Thomas Keily: [00:15:08] I mean, I wouldn't want to do it. It's that's boring. [00:15:10][2.1]

Adam Keily: [00:15:11] I mean do you think this is boring doing this. Imagine. Yeah, that's. Yeah. Economists like to rag on statisticians would be boring statisticians to economists. What economists to everyone else. The economy. Great guy. A great guy. Right. OK, so we got, we got, we got we got to wrap this up. We got interest rates, we've got [00:15:36][24.6]

Thomas Keily: [00:15:38] price of stuff. [00:15:38][0.5]

Adam Keily: [00:15:39] Inflation, inflation. Is that another one. No, no. That's the price of stuff. Yeah. That's inflation. The price of stuff. But going up isn't it. [00:15:47][8.7]

Thomas Keily: [00:15:47] Yeah. It's the rate of change in the price of stuff. Who. [00:15:52][4.3]

Adam Keily: [00:15:53] OK, so how fast, how fast the bread is getting like going from two fifty to 280. Yeah. [00:15:58][5.3]

Thomas Keily: [00:15:58] Yeah. Yeah exactly. So he said inflation is two percent. It means that the price of stuff is going up two percent a year. Right. OK, that's what, that's what that means. Yeah. So that's why they often [00:16:08][10.0]

Adam Keily: [00:16:08] talk about wanting to outpace inflation for your savings or your investments or whatever it is. Kind of there's no point putting money. Like for me at the moment, there's no point putting money in a bank way. What's a bank paying at the moment. Like half a percent of something. [00:16:23][15.2]

Thomas Keily: [00:16:24] Yeah. If you're lucky. Yeah. [00:16:25][1.2]

Adam Keily: [00:16:26] So there's no point putting money in there because essentially inflation, if that's rising two percent, then your money's worth less than when you put it in. [00:16:33][7.0]

Thomas Keily: [00:16:33] That's right. That's right. [00:16:34][1.0]

Adam Keily: [00:16:35] She's OK to be an economist. [00:16:36][1.1]

Thomas Keily: [00:16:37] Yeah, well, you're on your way. [00:16:38][1.2]

Adam Keily: [00:16:40] A little more conviction would be appreciated. I was going to say anyone can be an economist even though I knew it. It's just it's really just breaking through that entry layer of boredom. And if you can get through it, then it's really not that you break it. [00:17:01][20.8]

Thomas Keily: [00:17:01] That could be a tag line breaking through the board room left. [00:17:03][2.2]

Adam Keily: [00:17:04] All right. So we've got interest rates and. [00:17:08][4.0]

Thomas Keily: [00:17:09] Inflation makes up like it is the exchange rate. So that's the price of the currency, right? How much the Australian dollar's worth against what, sir? Well, depends on what there's always a pair. So typically you talk about the Australian dollar in US dollar terms. So when it's about like 70 percent, 70 cents as it is now, that means it's worth 70 US cents. But there's an exchange exchange rate with every currency pair right back. [00:17:37][27.2]

Adam Keily: [00:17:37] This is one thing we look at as part of this process. [00:17:39][1.8]

Thomas Keily: [00:17:40] Yeah, yeah. We understand the price of our currency and we [00:17:42][2.4]

Adam Keily: [00:17:42] look at every penny. How do we know if we're doing well or the other country in the paper is doing badly? [00:17:47][4.7]

Thomas Keily: [00:17:49] I don't know that we care, [00:17:50][0.7]

Adam Keily: [00:17:50] but this seems to be a common answer. The last episode about the economy, and I think we resolved that it doesn't really matter. So episode two and we don't care about prices when I. [00:18:06][16.0]

Thomas Keily: [00:18:06] No, we don't care. We don't care. Why prices. Why exchange rates? A particular look, unless you're trying to predict the trajectory of the exchange rate, you don't you shouldn't you personally shouldn't care about why the Aussie dollar is where it's at. It's not relevant to you, you know what I mean? Yeah. And you wouldn't understand it. [00:18:26][19.9]

Adam Keily: [00:18:32] That felt so good that I saw you there every now and then you have one, yeah. [00:18:38][5.8]

Thomas Keily: [00:18:38] Oh, you want to know? It's like if we have a cheaper currency, typically our economy grows faster because we are exports become cheaper. So foreigners buy more of it generally, generally seen as good news for us. And that's sort of why we why we're sort of interested in it. That's why the main reason why you should be interested in it. Also, if you're investing in foreign markets like the US market or something, [00:19:01][23.1]

Adam Keily: [00:19:02] I do have some US stocks. [00:19:03][1.0]

Thomas Keily: [00:19:04] Would you believe you think about the exchange rate when you invest in. [00:19:07][2.8]

Adam Keily: [00:19:09] No, so it wasn't a big thesis, put it that way. What was the 50 worth of the equity mate's thesis? Yeah, it was the broker who was offering the chance of a free stock if it's Binnaway. Yeah, I got literally Bulawayo and I won some stock, and then I had some money and a broker. So I thought I better invest it somewhere. So that's yeah. That was kind of a lot of my thought process or investing in the US market. Yeah. Yeah. So the next time you go to Carlton [00:19:48][39.5]

Thomas Keily: [00:19:49] McGregor and say what's happening on the exchange rate, is now a good time to get into the US market? [00:19:53][4.3]

Adam Keily: [00:19:53] Okay. Yes. All right. So last the last one, I think this is we got interest rates, inflation. What, you're really not writing this down? All I know is keeping interest rates, inflation, currency, what's next? [00:20:15][21.4]

Thomas Keily: [00:20:15] And that's probably from our perspective, that's the ASX 200. So it's the index. It's the price of stocks. Right. So the price of investments. Okay, that's the one we're primarily interested in. So, yeah. So what the price of our investments, whether they're going up or down or whether that tells us if we're making a capital gain or I [00:20:35][19.5]

Adam Keily: [00:20:35] can say, okay, so let's, let's take a step back. So we've got this dashboard and on the left we've got activity in the GDP. And it's what the other thing, unemployment, unemployment, GDP, unemployment. And on the right, we've got prices, we've got interest rates, blah, blah, blah. [00:20:52][17.1]

Thomas Keily: [00:20:53] So, yeah, inflation, exchange rates, and six two hundred [00:20:56][3.2]

Adam Keily: [00:20:56] or so like when they talk about all this stuff on the news or wherever it is, like, should I be trying to get my head around all this or should I just be kind of doing what I do with most things and just kind of Googling as you need? Whatever, find that, find a good publication. Who can interpret it for me? Like, how [00:21:14][17.7]

Thomas Keily: [00:21:14] hard is it to kind of get your head around that stuff? I don't think it's particularly hard. Look, I'm I'm reasonably confident that by the end of these 10 episodes or whatever we're doing in this prime series, that if you if it sinks in and you recall it from week to week or beginning of podcast, the end of podcasting or that. [00:21:33][18.3]

Adam Keily: [00:21:34] Yeah. Let's go through that. All right. [00:21:35][1.6]

Thomas Keily: [00:21:36] Yeah, but if you if you if you did that, then you would start to understand the economic data and you know, and so like it's one thing to be interested in the economy because that tells you how your investments are going to perform well, gives you some sectoral thesis of how you want to invest or what are the themes you're working to. That's that's that's no good unless you know how to how to read an economy, how to read where economies and how to read where the industries are going that you're interested in. And the data is the way that we get that read is that is the data gives us the ability to see what's going on. But there is a lot of data out there. And kind of why I thought this was useful is that it's just a simple framework that any data that you get from wherever you can fit into this framework. So there are two halves. There are only six gauges on the dashboard that we're interested in. You can understand anything that you come across is going to have relevance to one of the six gauges. And if you know where the six gauges are more or less and how they're tracking, then you've got a pretty good idea of where the economy is at, how the economy's going in, the outlook for your investments in that sort of thing if you want to be investing at that level. And I think to be a conscious investor where you're actually actively managing your money and not flying blind, then you need to have at least some understanding here. Otherwise, how do you evaluate the firm's outlook? How do you evaluate the firm's prospects, what the share is, what fair value is for their share price? Is there any of that? You need to have some idea of what the economy's doing and where it's at. [00:23:13][96.8]

Adam Keily: [00:23:13] But couldn't they couldn't like if you're looking at a company to buy some shares, isn't it possible that that company could be could perform well or they could perform terribly independent of whatever was happening in the economy? [00:23:24][10.9]

Thomas Keily: [00:23:26] Yes, absolutely, absolutely. So. It is not the complete picture, just backing, I mean, it is if you buy so if you buy the ASX, the ASX index, like any exchange-traded fund that's tracking the Australian economy, so you can expect the ASX to grow in line with the economy. So that's where all of your investments are. Well, then you're not actively trading anyway, so it doesn't really matter. But like the outlook for the economy directly tells you the outlook for that investment for particular companies, it's it's part of the picture. Like you can have a great company in a great market, growing economy, and that does really well. You can have a dud company and a great economy that does badly, or you can have a great company in a dud economy that performs badly. So it's sort of its part of the picture you need to know. So, yeah. So that's why it's useful to understand. Like, I think, you know, you should be more interested in the particulars of the company and the financial outlook for the company itself. Yeah, but, you know, maybe it's like 20, 30 percent need to be aware. Yeah. They need to be aware, need to be part of your picture to do it properly. And it's not that hard to do. As I was saying, like in 10 episodes you can sort of you can get a handle on it. Yeah. I get to know the economy and where it's at and then that'll help, you know, as we're sort of looking at the news and stuff that's coming up, it'll help you start to all make sense and you'll have a bit of habit, have a get you'll get a handle on the bigger picture. [00:24:56][89.7]

Adam Keily: [00:24:57] I like your confidence and you're not. [00:25:02][4.9]

Thomas Keily: [00:25:02] You particularly like more [00:25:03][1.6]

Adam Keily: [00:25:04] of you, General, especially your listeners. You, as I've asked you straight into, these are the listeners, will you? Well, good luck, Listers. And we're going to be on this journey together. And I look forward to knowing all about this, to be honest. I do, because, you know, I'm an I'm adult now. I've got a job. I've got super I've got investments. I've got all these things that go into being a big boy. And I'm yeah, I'm certainly keen to get a handle on the big picture, as it were. So thanks for listening to Episode two. That's a wrap for us. Be sure to join us again next time. Thanks for your company and we'll see you again. [00:25:04][0.0]

[1315.5]