Economic indicator - AbsoluteAstronomy.com

An economic indicator is a statistic

Statistic

A statistic is a single measure of some attribute of a sample . It is calculated by applying a function to the values of the items comprising the sample which are known together as a set of data.More formally, statistical theory defines a statistic as a function of a sample where the function...

about the economy

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

. Economic indicators allow analysis of economic performance and prediction

Prediction

A prediction or forecast is a statement about the way things will happen in the future, often but not always based on experience or knowledge...

s of future performance. One application of economic indicators is the study of business cycle

Business cycle

The term business cycle refers to economy-wide fluctuations in production or economic activity over several months or years...

s.

Economic indicators include various indices, earnings reports, and economic summaries. Examples: unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

rate, quits rate, housing starts

Housing starts

Housing starts is the number of privately owned new houses on which construction has been started in a given period. This data is divided into three types: single-family houses, townhouses or small condos, and apartment buildings with five or more units.Each apartment unit is considered a single...

, Consumer Price Index

Consumer price index

A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

(a measure for inflation), Consumer Leverage Ratio

Consumer leverage ratio

Consumer Leverage Ratio is a term popularized by William Jarvis and Dr. Ian C MacMillan in a series of articles in the Harvard Business Review and refers to the ratio of total household debt, as reported by the Federal Reserve System to disposable personal income, as reported by the US Department...

, industrial production

Industrial production

Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of GDP , they are highly sensitive to interest rates and consumer demand...

, bankruptcies, Gross Domestic Product

Gross domestic product

Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

, broadband internet penetration

Broadband Internet access

Broadband Internet access, often shortened to just "broadband", is a high data rate, low-latency connection to the Internet— typically contrasted with dial-up access using a 56 kbit/s modem or satellite Internet with inherently high latency....

, retail sales, stock market

Stock market

A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...

prices, money supply

Money supply

In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...

changes.

The leading business cycle dating committee in the United States of America

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

is the National Bureau of Economic Research

National Bureau of Economic Research

The National Bureau of Economic Research is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." The NBER is well known for providing start and end...

(private). The Bureau of Labor Statistics

Bureau of Labor Statistics

The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...

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

United States Census Bureau

The United States Census Bureau is the government agency that is responsible for the United States Census. It also gathers other national demographic and economic data...

and United States Bureau of Economic Analysis

Bureau of Economic Analysis

The Bureau of Economic Analysis is an agency in the United States Department of Commerce that provides important economic statistics including the gross domestic product of the United States. Its stated mission is to "promote a better understanding of the U.S...

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

The Conference Board

The Conference Board, Inc. is a non-profit, non-partisan business membership and research group. It has approximately 12,000 executives in its network, from 1200 corporations in 60 countries. It holds conferences, convenes executives, conducts economic and business management research, and is seen...

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.

The 10 Components of Leading Indicators

Average weekly hours (manufacturing) - Adjustments to the working hours of existing employees are usually made in advance of new hires or layoffs, which is why the measure of average weekly hours is a leading indicator for changes in unemployment.
Average weekly jobless claims for unemployment insurance - The CB reverses the value of this component from positive to negative because a positive reading indicates a loss in jobs. The initial jobless-claims data is more sensitive to business conditions than other measures of unemployment, and as such leads the monthly unemployment data released by the Department of Labor.
Manufacturers' new orders for consumer goods/materials - This component is considered a leading indicator because increases in new orders for consumer goods and materials usually mean positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, a precursor to future revenue.
Vendor performance (slower deliveries diffusion index) - This component measures the time it takes to deliver orders to industrial companies. Vendor performance leads the business cycle because an increase in delivery time can indicate rising demand for manufacturing supplies. Vendor performance is measured by a monthly survey from the National Association of Purchasing Managers (NAPM). This diffusion index measures one-half of the respondents reporting no change and all respondents reporting slower deliveries.
Manufacturers' new orders for non-defense capital goods - As stated above, new orders lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods/materials component (#3).
Building permits for new private housing units.
The Standard & Poor's 500 stock index - The S&P 500 is considered a leading indicator because changes in stock prices reflect investor's expectations for the future of the economy and interest rates.
Money Supply (M2) - The money supply measures demand deposits, traveler's checks, savings deposits, currency, money market accounts and small-denomination time deposits. Here, M2 is adjusted for inflation by means of the deflator published by the federal government in the GDP report. Bank lending, a factor contributing to account deposits, usually declines when inflation increases faster than the money supply, which can make economic expansion more difficult. Thus, an increase in demand deposits will indicate expectations that inflation will rise, resulting in a decrease in bank lending and an increase in savings.
Interest rate spread (10-year Treasury vs. Federal Funds target) - The interest rate spread is often referred to as the yield curve and implies the expected direction of short-, medium- and long-term interest rates. Changes in the yield curve have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted, that is, when the longer-term returns are expected to be less than the short rates.
Index of consumer expectations - This is the only component of the leading indicators that is based solely on expectations. This component leads the business cycle because consumer expectations can indicate future consumer spending or tightening. The data for this component comes from the University of Michigan's Survey Research Center, and is released once a month.

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

Bollinger bands

Bollinger Bands and the related indicators %b and BandWidth are technical analysis tools invented by John Bollinger in the 1980s. Having evolved from the concept of trading bands, Bollinger Bands can be used to measure the highness or lowness of the price relative to previous trades.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
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

(inverted)
The value of outstanding commercial and industrial loans
The change in the Consumer Price Index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

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

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 payroll
Payroll
In a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time. Payroll plays a major role in a company for several reasons...

s
Personal income
Personal Income
In economics, personal income refers to an individual's total earnings from wages, investment enterprises, and other ventures....

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
Procyclical
Procyclical is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of countercyclical. However, it has more than one meaning.-Meaning in business cycle theory:...

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
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

(GDP) is a procyclic indicator.
Countercyclic
Countercyclical
Countercyclical is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of procyclical. However, it has more than one meaning.-Meaning in policy making:...

indicators move in the opposite direction to the general economy. The unemployment rate is countercyclic: it rises when the economy is deteriorating.
Acyclic
Acyclic
Acyclic can refer to:* In chemistry, a compound which is not cyclic, e.g. alkanes and acyclic aliphatic compounds* In mathematics:** A graph without a cycle, especially*** A directed acyclic graph...

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

Craigslist

Craigslist is a centralized network of online communities featuring free online classified advertisements, with sections devoted to jobs, housing, personals, for sale, services, community, gigs, résumés, and discussion forums....

, weekend subway ridership numbers, parking garage usage, and monthly reports on passenger landings at the city's airport.

External links

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.