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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
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