Transcript Economic Indicators

DEFINITION
 An
economic indicator is a statistic
about an economy.
 It is a piece of data of
macroeconomic scale that is used to
interpret the overall health of the
economy.
 It is also called business indicator.
 Examples: unemployment, GDP
ATTRIBUTES
TIMING
a. Coincident indicators
These occur at the same time as the
economic activity. They change at the
same time as the economic activity. E.g.
payroll, industrial production
b. Lagging indicators
It changes after the economy has begun to
follow a certain trend. E.g.
unemployment rate, change in the labor
costs per unit of output
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ATTRIBUTES
Leading indicators
It changes before an economy begins
to follow a certain trend. It is used
to predict changes and may not be
always accurate.
E.g. stock prices, inflation, interest
rates
c.
Relation to the business cycle
 Pro
cyclic
It is an indicator that moves in the
same direction as the economy. If
the economy is doing well the
number increases and if it is in a
state of recession the number is
decreases. e.g. GDP
.
 Acyclic
indicator
It is an economic indicator that does
not have any relation to the health of
an economy and is generally of no
use.
 Counter
cyclic
This has an inverse relationship and
decreases with an increase in the
overall health of the economy.
e.g. unemployment rate
 Frequency
of data
It refers to the frequency with which
the indicators change and are made
known to the public. Like the GDP
figures are introduced every three
months in some countries while
some indicators change every
minute.
GROSS DOMESTIC PRODUCT
 It
can be defined as the total market
value of all goods and services
produced within a country in a given
period of time.
 It includes personal consumption,
government purchases, gross private
domestic investment, exports less
imports.
 GDP=C+G+I+X-M
GROSS DOMESTIC PRODUCT
 It
is the most followed and
understood indicator by the
investors. An yearly growth of 2-3%
is accepted as an overall benefit and
is enough for corporate profit and job
growth . This will ensure that the
undue inflatory concerns are not
enticed.
CONSUMER PRICE INDEX
It is an index measuring the average price
of consumer goods and services
purchased by households.
A percentage change in the CPI is a
measure of inflation.
This is also a very prominent and well
accepted indicator.
It is measured by considering the costs of
a bundle of goods that includes food stuff,
energy, services , luxury goods also.
UNEMPLOYMENT RATE
 It
can be defined as the total number
of people actively seeking work out
of the total number of employable
people.
 It can also be defined as the number
of unemployed people as a percent
of the work force.
 A growing economy must show
falling unemployment rates.
INDUSTRIAL PRODUCTION
It refers to the volume of goods produced
by factories, mines and electric utilities.
 It measures the changes in the output of
the industrial sector.
 These sectors’ contribution to GDP is less
but it is sensitive to interest rates and
consumer demand and so influences
future GDP and economic performance

CAPACITY UTILISATION
It explains the extend to which an
economy utilizes its installed capacity.
 It is the relationship between the actual
output and the potential output.
 If demand rises the capacity utilization
also rises. Hence this is also an indicator
of the strength of the economy.

MONEY SUPPLY
It refers to the total amount of money
circulating in the economy at a point of
time. It includes the money in the hands
of non bank public as well as in the bank
accounts as deposits and other savings.
 Increased money supply results in
increased GDP.
 A decrease slows down the economy.
 It should not rise uncontrollably as it
results in inflation.
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INTEREST RATES
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Interest is a fee paid on borrowed assets . The
most commonly borrowed one is money.
Interest is the fee paid to the lender for foregoing
other investments that could have been made
with the borrowed money.
Higher interest rates shows the scarcity of money
in an economy and hence is an indicator of the
strength of an economy.
Interest rates are regulated from time to time by
the government to encourage investment by
issuance of loans.
INFLATION
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The rate at which the general level of prices for
goods and services is increasing .
It means that the value of the currency is
decreasing and it requires more money to buy a
product.
It may be due to demand pull.
It may also be due to cost push.
It may be due to government deficit.
A certain level inflation is good for the economy
and it indicates the strength of the economy.
PRODUCER PRICE INDEX
It is another index used to measure the
increase in price of goods and services at
a wholesale level.
 It was earlier called WPI.
 Imports are not included in this.
 It is again done for a basket of goods like
CPI.
 This is also an indicator of strength of the
economy as it directly affects the CPI.
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REFERENCES
http://www.investopedia.com
 http://www.economics.about.com
 http://www.moneychimp.com
 http://www.ecolib.com
 http://www.socialstudieshelp.com
 http://www.investorwords.com
 http://www.wikipedia.com
 Macroeconomics
by Stanley Fischer
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