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.

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.

Leading indicators

Leading indicators are indicators that usually change before the economy as a whole changes. 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. 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.

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.

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

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.

There are four economic statistics comprising the Index of Coincident Economic Indicators:

• Number of employees on non-agricultural payrolls
• Personal income less transfer payments
• Industrial production
• Manufacturing and trade sale

The Philadelphia Federal Reserve produces state-level coincident indexes based on 4 state-level variables:

• Nonfarm payroll employment
• Average hours worked in manufacturing
• Unemployment rate
• Wage and salary disbursements deflated by the consumer price index (U.S. city average)

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.

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.

See also

• Big Mac Index
• Bureau of Labor Statistics
• CAPRI model
• Consumer Confidence Index
• Consumer Leverage Ratio
• Consumer price index
• Core inflation
• Economic calendar
• Economic data
• Fundamental analysis
• Genuine Progress Index
• Gross domestic product
• Inflation
• Lipstick effect
• List of economic reports by U.S. government agencies
• Misery index (economics)
• SET Index
• The Conference Board

External links

• U.S. Bureau of Labor Statistics
• A Beginner's Guide to Economic Indicators
• Investopedia Economic Indicators: An Overview
• OECD indicators
• The Conference Board - Economic Indicators
• Education - Federal Reserve Bank of New York
• FED101 - Economic Indicators
• ECRI U.S. Weekly Leading Index
• International Conference on Indicators and Survey Methodology