No,
the stock market is not an accurate indicator of the economy Profit answers your questions and lists out the reasons why the stock market isn’t an indicator of the economy 30
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By Ariba Shahid
he stock market is not an accurate indicator of the economy. If you’re on twitter you’ve probably read this scribe tweet about it often enough - at times ad nauseam even. Whether you agree or disagree to the statement widely depends on a number of reasons. Before we get into details and talk about whether or not the stock market is an indicator of the economy, let’s talk about what politicians say. It’s simple. If you’re in government and the stock market index goes up taking credit for it seems like the best thing to do because optics. If you’re in opposition and the market goes down, you could say that the government is doing a terrible job at managing the economy and it is reflected in the index’s performance. Our argument, which also happens to be true by the way, is that whether the stock market goes up or down it says absolutely nothing about how the economy is doing. It does say how people think the economy is doing, but that is a pretty big and pretty significant detail. However, before we debate on this
concept, let’s get some concepts straight, and to do that let us answer some important questions.
How do you define an economy?
A
textbook definition is that an economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money. In order to understand how the economy is performing we use a number of indicators. These indicators are pieces of economic data. They are usually macroeconomic and not microeconomic. Macroeconomic data is basically data for the aggregate economy. This means large scale data such as the total number of cars produced in an economy in a year. Microeconomics, in contrast, is on a smaller level - as the name suggests. For instance, the number of cars produced by a single manufacturer in a year. Another example to understand this better could be the total money spent by the government in a year is concerned with macroeconomics; while the total money spent by your family in a year is concerned with microeconomics.
