Economic Indicators Types and Interpretation

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Table of Contents

Introduction
Interpretation of each indicator
References

Introduction

Economic indicators show the statistic of an economy. They are used to analyze the economic performance of a country. Besides, they are used to predict future performance. Another use of economic indicators is to study the business cycle in the economy. That is, they can tell whether an economy is at recession, boom, or recovery. Based on timings, economic indicators can be categorized into three. These are coincident, leading, and lagging indicators. Some of the economic indicators include gross domestic product, employment rate, stock market prices, consumer price index, and industrial production (The Federal Reserve Bank of Minneapolis, 2012).

Leading indicators

Reflectively, “leading indicators change before changes in the economy are felt” (“The Conference Board: Business Cycle Indicators Handbook”, par. 4). That is, they change direction in advance before the business cycle. Some of the leading indicators include average weekly hours, stock prices, interest rate spread, housing permits, new orders, and consumer expectations. In as much as the indicators are given much attention in the economy, they are meaningful when used within the framework of lagging and coincident.

Lagging indicators

In the ideal situation, “lagging indicators change after the economy as a whole does” (“The Conference Board: Business Cycle Indicators Handbook”, par. 8). They change direction after coincident indicators. These lags usually occur after a quarter of a year. Therefore, they are not beneficial for economic analysis and are often ignored. In some instances, they help to confirm the movements of leading and coincident indicators. In addition, the series help to warn us of structural imbalances growing within the economy. For instance, “represent costs of doing business, such as inventory-sales ratios, change in unit labor costs, and the average prime rate charged by banks” (The Conference Board, 1999)

Coincident indicators

Coincident indicators provide information about the current state of the economy. They are expansive series that measure aggregate economic movement. This is because they change approximately concurrently as the whole economy. Some of the coincident indicators are trade sales, production, employment, manufacturing, and personal income.

The Principle Federal Economic Indicators are “Consumer Price Index, Employment Cost Index, The Employment Situation (which includes the unemployment rate and payroll employment), Producer Price Indexes, Productivity and Costs, Real Earnings, U.S. Import and Export Price Indexes” (United States Department of Labor, 12). The table below summarizes the statistics for some of the economic indicators.

Table 1.0 Statistics for economic indicators.

	Type of the indicator	Economic indicator	Index
1	Leading	Stock prices 500 common stocks	0.0304
2	Leading	Money supply, M2	0.3034
3	Coincident	Personal income less transfer	0.2830
4	Lagging	The average duration of unemployment	0.0370

Interpretation of each indicator

Stock prices 500 common stocks

This indicator shows the price movement of a variety of stock traded in New York Stock. Movement of this stock shows general sentiments of investors and the movement of interest rates.

Money supply, M2

M2 “is inflation-adjusted money supply which comprises of demand deposits, currency, savings deposits, and traveler’s checks” (“The Conference Board: Business Cycle Indicators Handbook”, par. 12). The money supply in the economy determines interest rates. This, in turn, determines the level of investment in the economy.

Personal income less transfer

This gives data for the aggregate amount of income individuals receive. They are inflation-adjusted dollars. The income levels are important because they determine aggregate spending and state of the economy.

The average duration of unemployment

This indicator measures the average period in weeks a person is not at work. This index gives the amount of idle human resources in the economy.

References

The Conference Board: Business Cycle Indicators Handbook. (1999). Web.

The Federal Reserve Bank of Minneapolis: The Federal Reserve’s Beige Book: A better mirror than crystal ball. (2012). Web.

United States Department of Labor: Bureau of Labor Statistics. (2010). Web.

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