Economic indicator
An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles.
Economic indicators include various indexes, earnings reports, and economic summaries. Examples: unemployment rate, quits rate, housing starts, Consumer Price Index (a measure for inflation), Consumer Leverage Ratio, industrial production, bankruptcies, Gross Domestic Product, broadband internet penetration, retail sales, stock market prices, money supply changes.
The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research (private). The Bureau of Labor Statistics is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics. Other producers of economic indicators includes the United States Census Bureau and United States Bureau of Economic Analysis.
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[edit] Classification by timing
Economic indicators can be classified into three categories according to their usual timing in relation to the business cycle: leading indicators, lagging indicators, and coincident indicators.
[edit] Leading indicators
Leading indicators are indicators that usually change before the economy as a whole changes.[1] They are therefore useful as short-term predictors of the economy. Stock market returns are a leading indicator: the stock market usually begins to decline before the economy as a whole declines and usually begins to improve before the general economy begins to recover from a slump. Other leading indicators include the index of consumer expectations, building permits, and the money supply.[citation needed] The Conference Board publishes a composite Leading Economic Index consisting of ten indicators designed to predict activity in the U. S. economy six to nine months in future.
[edit] Lagging indicators
Lagging indicators are indicators that usually change after the economy as a whole does. Typically the lag is a few quarters of a year. The unemployment rate is a lagging indicator: employment tends to increase two or three quarters after an upturn in the general economy. In finance, Bollinger bands are one of various lagging indicators in frequent use. In a performance measuring system, profit earned by a business is a lagging indicator as it reflects a historical performance; similarly, improved customer satisfaction is the result of initiatives taken in the past.[citation needed]
The Index of Lagging Indicators is published monthly by The Conference Board, a non-governmental organization, which determines the value of the index from seven economic variables. These components tend to follow changes in the overall economy.
The components are:
- The average duration of unemployment (inverted)
- The value of outstanding commercial and industrial loans
- The change in the Consumer Price Index for services
- The change in labour cost per unit of output
- The ratio of manufacturing and trade inventories to sales
- The ratio of consumer credit outstanding to personal income
- The average prime rate charged by banks
[edit] Coincident indicators
Coincident indicators change at approximately the same time as the whole economy, thereby providing information about the current state of the economy. There are many coincident economic indicators, such as Gross Domestic Product, industrial production, personal income and retail sales. A coincident index may be used to identify, after the fact, the dates of peaks and troughs in the business cycle.[2]
There are four economic statistics comprising the Index of Coincident Economic Indicators:[citation needed]
- Number of employees on non-agricultural payrolls
- Personal income less transfer payments
- Industrial production
- Manufacturing and trade sale
[edit] By direction
There are also three terms that describe an economic indicator's direction relative to the direction of the general economy:
- Procyclic indicators move in the same direction as the general economy: they increase when the economy is doing well; decrease when it is doing badly. Gross Domestic Product (GDP) is a procyclic indicator.
- Countercyclic indicators move in the opposite direction to the general economy. The unemployment rate is countercyclic: it rises when the economy is decreasing.
- Acyclic indicators are those with little or no correlation to the business cycle: they may rise or fall when the general economy is doing well, and may rise or fall when it is not doing well.[3]
[edit] Local indicators
Local governments often need to project future tax revenues. The city of San Francisco, for example, uses the price of a one-bedroom apartment on Craigslist, weekend subway ridership numbers, parking garage usage, and monthly reports on passenger landings at the city's airport.[4]
[edit] See also
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- Economic calendar
- Economic data
- List of economic reports by U.S. government agencies
- Big Mac Index
- Bureau of Labor Statistics
- CAPRI model
- Consumer Confidence Index
- Consumer price index
- Consumer Leverage Ratio
- Core inflation
- The Conference Board
- Fundamental analysis
- Genuine Progress Index
- Gross domestic product
- Inflation
- Lipstick effect
- Misery index (economics)
- SET Index
[edit] References
- ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 314.
- ^ Charles Emrys Smith, 'Economic Indicators,' in Wankel, c. (ed.) Encyclopedia of business in Today's World, California, USA, 2009.
- ^ About.com, A Beginner's Guide to Economic Indicators, retrieved November 209. This was the source of "procyclic," "acyclic," etc., as well as confirmation of "leading," "lagging," etc., and the source of some of the examples.
- ^ "A Fresh Approach To Measuring The Economy". 2010-04-11. http://www.npr.org/templates/story/story.php?storyId=125837367. Retrieved 2010-04-20.
