53. A Simple Explanation of the US Economy for Traders

http://www.informedtrades.com/
An overview of the US Economy and the first two components of the economy which are natural resources and the labor force. Explanation meant for traders of the forex, futures, and stock markets.

In our last lesson we gave an introduction to fundamental analysis with an introduction to the top down approach to analyzing fundamentals

and the US Economy. In today's lesson we are going to expand our discussion on the

US economy by looking at the different pieces which make up the economy and how each piece is relevant to us as traders of the stock, futures, and/or

forex markets.

The first component of any economy is its natural resources. One of the key factors that allowed the United

States to grow so quickly and become one of the world powers that it is today, is that it is a land that is rich

in natural resources from oil which drives our industry, to lumber to build our houses, to our large coastlines,

great lakes, and rivers which provide shipping access and move goods throughout the country.

Understanding what natural resources are most important to a country and understanding what affects the prices

of those resources is beneficial to not only commodities traders who trade the actual commodities such as oil

and gold but also to traders of the stock and forex markets. We will go into these correlations in more detail

in later lessons but a short example is that the US economy relies heavily on oil, so when the price of oil goes

higher this is normally seen as a negative for the US Economy as it then costs more for companies to ship their

goods, and for individuals to fill up their cars leaving them less money to spend. Similarly, as the US Imports

much of its oil, when the price of oil goes up this means that more dollars are being sold and converted into

the currencies of the countries which are exporting the oil to the US, therefore all else being equal weakening

the US Dollar and strengthening the currency of the exporting country.

The next component of any economy is its labor force, or the individuals who are working in that economy to

produce goods and services from the countries natural resources. As the labor force in an economy gets paid for

their labor, and then spends that money on the goods and services they and other components of the labor force

have produced, they are an important driver of growth in any economy.

The components which are watched in regards to labor are the size of the labor force in an economy, its rate of

growth, its productivity level, and its skill level, and its mobility or ability to adapt to changing

conditions. Another reason why the United States has the largest economy in the world is the size of its labor

force is constantly growing allowing the economy to produce and sell more goods and services, it is a relatively

mobile labor force which has allowed it to increase productivity faster than other nations through things such

as early adoption of new technology, and it is an educated labor force.

Why is this important from a trading standpoint? Here again we will go into more detail on this when we look at

important economic numbers but a short example is if the labor force becomes more productive, this means that

they are able to produce more goods in the same amount of time. This not only makes companies more profitable

but it holds down prices for the consumer, giving them more money to spend on other goods and services, which

drives growth, which means a higher stock market all else being equal. This increased growth can cause higher

demand for commodities therefore causing the commodities markets to rally all else being equal, and can also

have interest rate implications, something we will learn about in later lessons, which can affect the US

Dollar.

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[sharkmad7]

Excellent video and analysis Dave

[InformedTrades]

Thanks glad you like it!

[ney123456789]

hello david!! can you tell me what happened to this video?? =(

[InformedTrades]

Hi new123456789, The video is playing fine for me let me know if you are still having trouble and I can send a link to your YouTube email. Best Regards,

Dave

[mmboyes]

Hi excellent videos. But isn't OPEP countries use usa dollars as the currency for their goods? Wasn't this ratified in the last Opep meeting, that they wont change their currency to the euro, even though had been talks abouts it?

[InformedTrades]

Hi, Thanks for the comment am glad you like the videos. Yes currently OPEC prices and trades oil in US Dollars and although there is still talk about switching to the EUR they have not said that they are going to do so yet. With this in mind I could have chosen a better example for the video and will update it in the next version.  There is still an effect here however as eventually those dollars will have to be converted to pay people etc in the local currency. Best Regards, Dave

[Britcoolful]

Relatively educated force, in US? :D:D Do you import them? No, there are visas.

Have you ever compared the level of education with any country in Europe? We do and we do have students and high school exchange from US... This isn't very broad education, it's called tunnel vision - only practice, no theory.

[LordoftheJamesClan]

is a growth based economy sustainable? Is their such thing as too large a workforce, or too productive a workforce?

[hfarhaan]

Oil and international commodities are only priced in dollars but can be bought with any hard currency like euro or yen or pound. Years ago oil could have been only bought in dollars but today it has become a global market which only "prices" things in dollars. OPEC recently debated about pricing oil in a basket of currencies as opposed to dollar but I dont think that is going to happen.....