Economic Terminology
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A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z
Asset
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
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Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
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Before-tax Income
Income before taxes are deducted.
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Business Inventories And Sales:
These figures measure the inventories and sales of
manufacturing, wholesalers, and retail establishments. These figures are
released monthly by the Bureau of Census. In most cases, an increase in these
numbers indicates an expanding economy which could be inflationary. Bond Market
Moves Down In Price.
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Capacity Utilization:
The capacity utilization rate measures the percent of
industrial output currently in use. A change in the rate indicates a change in
the direction of economic activity. As the percentage rate moves closer to 90%
the industrial output is practically at full capacity and is inflationary. A
number closer to 70% is recessionary. A higher percentage indicates a stronger
manufacturing sector and an expanding economy which can be inflationary. Bond
Market Moves Down in Price.
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Compound Interest
Interest paid on the original principal balance and on the
accrued and unpaid interest.
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Consumer Price Index (CPI):
The consumer price index is an indicator of the general
level of prices. Components include energy, food and beverages, housing,
apparel, transportation, medical care, and entertainment. When the consumer
price index goes up, it is a sign of an inflationary environment. Consumers have
to pay more for the same amount of goods and services. Bond Market Moves Down In
Price.
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Deposit
This is a sum of money given to bind the sale of real
estate, or a sum of money given to ensure payment or an advance of funds in the
processing of a loan.
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Durable Goods Orders:
This gives a reading on the country's future manufacturing
activity. Durable goods include those manufactured items with a normal life
expectancy of three years or longer. An increase in the amount of durable goods
orders may indicate an expansion in the economy and, if inflationary, the
Federal Reserve could choose to tighten money by raising interest rates. Bond
Market Moves Down In Price.
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Effective Gross Income
A borrowers normal annual income, including overtime that is
regular or guaranteed.Salary is usually the principal source, but other income
may qualify if it is significant and stable.
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Effect Of Economic Indicators On Fixed Income
Investments:
Market participants look to U.S. Government economic
releases as an indication of the economy's strength and general direction.
Overall, economic indicators reflect the rate of economic growth and inflation
which, in turn, affects interest rates. There is an inverse relationship between
interest rates and bond prices. If the economic indicators indicate that the
rate of inflation is on the rise, it will most likely result in higher interest
rates and lower bond prices. Conversely, if these indicators indicate the rate
of inflation is falling this will result in lower interest rates and higher bond
prices. The following glossary defines what these indicators are and how they
might affect the bond market.
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Factory Orders:
Manufacturer's shipments, inventories, and orders. Factory
orders include shipments, inventories, and new and unfilled orders. An increase
in the factory order total may indicate an expansion in the economy and could be
an inflationary factor. Bond Market Moves Down In Price.
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FED Is Easing:
Exactly the opposite of Fed tightening. The Federal Reserve
feels that the economy is not growing at the desired level and eases credit
conditions by lowering interest rates to help stimulate the economy. Bond Market
Moves Up In Price.
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FED Is Tightening:
This term refers to efforts by the Federal Reserve to curb
excessive growth in the money supply. This can be accomplished by raising the
discount rate and/or increasing the federal funds rate. Bond Market Moves Down
In Price.
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Gross National Product (GNP):
The Gross National Product is the broadest measure of the
nation's production. It measures the market value of all newly produced goods
and services in the United States. When GNP is down, it shows a slowing down in
the economy. To counteract this, the Federal Reserve may loosen money by
lowering interest rates. Bond Market Moves Up In Price.
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Industrial Production Index:
The industrial production index measures the monthly level
of the physical output of the manufacturing, mining, and gas and electric
utility industries. When industrial production is down, it indicates a slowing
of economic growth and, therefore, the Federal Reserve is inclined to allow
interest rates to drop to stimulate the economy. Bond Market Moves Up In Price.
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Leading Economic Indicators:
This index is a composite of 11 statistics designed to
foretell economic activity 6 to 9 months hence, (i.e. building permits, new
orders for consumer goods and materials, the average workweek, index of consumer
expectations).
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Line of Credit
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount for a certain time.
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Liquid Asset
A cash asset or an asset that is easily converted into cash.
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Merchandise Trade Balance:
Released monthly, this figure measures the difference
between imports and exports. When exports are higher than imports, there is a
surplus in the balance of trade. When imports are higher than exports, there is
a deficit. The import-export differential is referred to as the trade gap.
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Money Supply:
The amount of money in circulation. M1 = cash + regular
demand deposits + other check-type deposits. M2 = M1 + savings and small
denomination time-deposits. When the money supply figure is up, it is an
inflationary factor and, therefore, generates concern that the Federal Reserve
will tighten money growth by allowing short-term interest rates to rise. Bond
Market Moves Down In Price.
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Net Worth
The value of all of a person's assets, including cash.
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Non-Farm Payroll:
The non-farm payroll figure is a component of total civilian
employment and measures the number of people employed in all activities except
agriculture.
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Non Liquid Asset
An asset that cannot easily be converted into cash.
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Prime Rate
The interest rate that banks charge to their preferred
customers.Changes in the prime rate influence changes in other rates, including
mortgage interest rates.
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Producer Price Index (PPI):
The monthly producer price index measures the level of
prices for all goods produced and imported for sale in the primary marketplace.
Increase in the PPI tends to lead other measures of inflation. Bond Market Moves
Down In Price.
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Retail Sales:
Key components of retail sales include automobiles, building
materials, furniture, department store sales, food stores, gasoline, clothing,
restaurants and drugstores. High retail sales are an indication of economic
growth and an expanding economy. Bond Market Moves Down In Price.
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Treasury Index
An index used to determine interest rate changes for certain
adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the
U.S. Treasury holds for its Treasury bills and securities or derived from the
U.S. Treasury's daily yield curve, which is based on the closing market bid
yields on actively traded Treasury securities in the over-the-counter market.
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Unemployment Rate:
This is the percent of the civilian labor force currently
unemployed. If unemployment figures are up, it indicates a lack of expansion
within the economy and is, therefore, good for the bond market. Conversely, a
big gain in employment would be an obvious cue for the Federal Reserve to
tighten (raise) either the federal funds rate or the discount rate. Bond Market
Moves Up In Price.
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