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Strategies & Market Trends : US Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (10)	8/19/2005 9:19:20 AM
From: GraceZ	Read Replies (1) \| Respond to of 97

I'll buy that. Housing prices also reflect inflation expectations. Most people expect to pay off their home mortgage with cheaper money in the future or higher future incomes (otherwise they wouldn't max out their borrowing) and/or that the house will be even more expensive for them in the future, thus even further out of reach. The first time you get the attitude that one needs to buy something today before it goes up in price reflects an expectation for inflation. Meanwhile with high tech goods you hear them say, "I'm waiting until the price comes down."

To: gpowell who wrote (10)	3/20/2006 1:26:13 PM
From: gpowell	Read Replies (2) \| Respond to of 97

As stated, this thread uses trends in unit labor costs as a proxy for trends in inflation. Can we quantify this relationship further? Consider: We can define GDP in terms of labor costs as a markup process, i.e. GDP = kW, where ‘W’ is the total wage costs and ‘k’ is some as yet unknown transfer function. If we divide both sides by the quantity of output (GDP/P), where P equals the price level, and we obtain: GDP/(GDP/P) = kW/(GDP/P). Now, convert W to an average wage (w) by dividing by the number employed, N, so that w = W/N, or alternately W = wN, to obtain: P = kwN/(GDP/P), If we now introduce output per employee: a = (GDP/P)/N, and substitute, we obtain: P = k*(w/a), where w/a is the unit labor cost. We will call this equation the Wage Markup equation. Thus, if k were a constant, changes in the price level would be fully reflected by changes in unit labor costs and vice versa, changes in unit labor costs would be fully reflected the price level.