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ECONOMICS REPORT—The Dow Jones Industrial Average - 2003-12-25

Broadcast: December 26, 2003

This is the VOA Special English Economics Report.

Doctors always measure the heartbeat of a patient when examining the patient’s health. The heartbeat of America’s stock markets is the Dow Jones Industrial Average. No other measure of stock value is as widely known. Sometimes it is simply called the Dow. It is published by the Dow Jones Company, an influential publisher of international financial news.

The Dow Jones Company is a product of Wall Street, the area in New York City that is the financial center of the United States. Three reporters, Charles Dow, Edward Jones and Charles Bergstresser, started the company in eighteen-eighty-two. At first, they published a handwritten newsletter for financial workers. It was very successful. By eighteen-eighty-nine, the newsletter became the Wall Street Journal newspaper.

The Dow Jones Company began publishing the Dow Jones Industrial Average in eighteen-ninety-six. The list had twelve stocks. It represented the biggest industries in the American economy at the time. Today, the Dow lists thirty stocks. They are often called “blue-chip” stocks. These stocks represent an ownership share in companies that are considered strong. These well known companies include Coca-Cola, Eastman Kodak, McDonald’s and General Electric.

When you read the Dow Jones Industrial Average, you quickly see that it is not the average price of thirty stocks. For example, the Dow recently increased to more than ten-thousand for the first time in more than eighteen months. Ten-thousand does not seem like the average price of thirty stocks.

In fact, the Dow Jones Industrial Average does not represent a price but a mathematical average. When the Dow goes up, it gains points, not dollars.

The Dow Jones uses what is called a flexible divisor to keep changes in individual stock prices from affecting the whole average too much. The Dow system generally divides stock prices by the flexible divisor. The result is the number we see in newspapers and on television news reports.

Today, the Dow is just one of many stock averages. The Standard and Poor’s Five-Hundred Index averages five-hundred stocks. Still others measure foreign stock exchanges.

While stock averages are good research tools, many people consider them the heartbeat of finance.

This VOA Special English Economics Report was written by Mario Ritter.