How high is your EQ?

Gauging the inner workings of a very complex U.S. economy

The economy is a massive and complex machine. It is so large that normal measurement scales are inadequate to put it in context. It has so many moving parts that it is impossible for anyone to fully comprehend it in a single glance. Trade between countries and companies has become so minutely intertwined that a shock in a distant emerging economy can have staggering repurcussions on a family in Topeka Kansas.

In the 1970's, the Ad Council launched a series of public service television commercials that asked questions like "How high is your EQ?" or "Do your kids have a higher EQ than you?" EQ stood for "economics quotient" and it was an obvious reference to IQ. I was just a high school kid at the time, but those commercials intrigued me and were one reason why I went on to get my degree in economics.

Given the complexity of our modern economy, I think the EQ questions are more relevant today than ever before. If you want a quick boost to your EQ, read Justin Lahart's excellent article in today's Wall Street Journal. It does a good job highlighting some key economic indicators and helps decipher what the indicators are telling us right now.

In a nutshell, here's what he says:

  • The economy appears to be on the cusp of recovery.
  • Corporate borrowing costs have fallen.
  • The labor market is showing tentative signs of improvement with new claims for unemployment benefits below the recession peak.
  • In April, more purchasing managers reported that orders were higher in the month than said orders were falling.
  • Capital markets are improving including a 30% increase in the U.S. stock market since the recent lows in early March.

And here are the indicators Lahart uses to illustrate his case: