Economic Indicators: A Beginner's Guide - Deepstash
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Economic Indicators

Economic Indicators

An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future.

Investors use all the information at their disposal to make decisions. If a set of economic indicators suggest that the economy is going to do better or worse in the future than they had previously expected, they may decide to change their investing strategy.

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Economic Indicators: Relation to the Business Cycle / Economy

  • Procyclical: This indicator is one that moves in the same direction as the economy. The GDP is an example.
  • Countercyclical: This indicator is one that moves in the opposite direction as the economy. The unemployment rate gets larger as the economy gets worse so it is a countercyclical economic indicator.
  • Acyclical: This indicator is one that has no relation to the health of the economy and is generally of little use. The number of home runs the Montreal Expos hit in a year generally has no relationship to the health of the economy, so we could say it is an acyclic economic indicator.

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Three Timing Types of Economic Indicators

  • Leading economic indicators change before the economy changes. Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession.
  • A lagged economic indicator is one that does not change direction until a few quarters after the economy does. The unemployment rate is a lagged economic indicator.
  • A coincident economic indicator is one that simply moves at the same time the economy does. The Gross Domestic Product is a coincident indicator.

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Total Output, Income, and Spending

These tend to be the broadest measures of economic performance and include such statistics as:

  • Gross Domestic Product (GDP) [published quarterly]
  • Real GDP [quarterly]
  • Implicit Price Deflator for GDP [quarterly]
  • Business Output [quarterly]
  • National Income [quarterly]
  • Consumption Expenditure [quarterly]
  • Corporate Profits[quarterly]
  • Real Gross Private Domestic Investment [quarterly].

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Employment, Unemployment, and Wages

These statistics cover how strong the labor market is and they include the following:

  • The Unemployment Rate [monthly]
  • Level of Civilian Employment[monthly]
  • Average Weekly Hours, Hourly Earnings, and Weekly Earnings[monthly]
  • Labor Productivity [quarterly].

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Production and Business Activity

These statistics cover how much businesses are producing and the level of new construction in the economy:

  • Industrial Production and Capacity Utilization [monthly]
  • New Construction [monthly]
  • New Private Housing and Vacancy Rates [monthly]
  • Business Sales and Inventories [monthly]
  • Manufacturers' Shipments, Inventories, and Orders [monthly].

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Prices

This category includes both the prices consumers pay as well as the prices businesses pay for raw materials and include:

  • Producer Prices [monthly]
  • Consumer Prices [monthly]
  • Prices Received And Paid By Farmers [monthly]

These measures are all measures of changes in the price level and thus measure inflation. Inflation is procyclical and a coincident economic indicator.

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Money, Credit, and Security Markets

These statistics measure the amount of money in the economy as well as interest rates and include:

  • Money Stock (M1, M2, and M3) [monthly]
  • Bank Credit at All Commercial Banks [monthly]
  • Consumer Credit [monthly]
  • Interest Rates and Bond Yields [weekly and monthly]
  • Stock Prices and Yields [weekly and monthly].

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Federal Finance

These are measures of government spending and government deficits and debts:

  • Federal Receipts (Revenue)[yearly]
  • Federal Outlays (Expenses) [yearly]
  • Federal Debt [yearly].

Governments generally try to stimulate the economy during recessions and to do so they increase spending without raising taxes. This causes both government spending and government debt to rise during a recession, so they are countercyclical economic indicators. They tend to be coincident to the business cycle.

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