Should economists care about equities?
- What does the rise in equity markets tell us about the global economy? Listed companies are a relatively small part of the world economy. Equity gains can tell us that a local economy is improving, that the global economy is improving or that money is being transferred from other parts of the economy to listed companies.
- Changing equity prices have economic consequences. Equity prices affect funding costs for companies - but only for large companies, and this does not matter much given the general availability of funding. Equity holders receive a wealth effect (why save if equities are rising in price). Just under half of Americans do not own equities.
- The NFIB small business survey is due in the US. Small businesses are economically significant, but the NFIB is a lobbying organization. The survey has sometimes shown a higher correlation to the lobbying stance than to the economic realities of small businesses.
- Japanese labor cash earnings were stronger than expected – a positive sign for domestic demand. They are still growing more slowly than perceptions of inflation, however. UK consumers seem to be battling through the political noise to spend money. BRC like-for-like sales were stronger than expected over Christmas.