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What are Economic Indicators?

2016-11-21T16:02:40+00:00

The term 'Economic Indicators' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Economic indicators are bits of economic data generally pertaining to the macroeconomic larger picture economy. Investors utilize them to decide on the investing climate as they consider the all around state of the economy. There are many different economic indicators which the government usually releases. Five of the most important are gross domestic product, consumer price index, employment indicators, PMI manufacturing and services, and central bank minutes.

Gross Domestic Product is the dollar value of every good and service a country produces in a set amount of time. It can be delivered in real and nominal formats. Real GDP makes adjustments for changes in the value of money. This indicator is one of the most anticipated by financial markets for its importance. Increases in GDP indicate an economy that is growing. Declines in it demonstrate an economy that is slowing. National growth rates like this are often utilized to judge the affordability of a country’s sovereign debt. They also determine if companies operating in the country are likely to be profitable.

Consumer Price Index is an inflationary figure. It looks at the household purchased goods and services and measures their changes over time. This statistical estimate is compiled by taking prices from a group of representative items. This CPI is often used to discern how much inflation is. Markets watch CPI figures to determine if inflation is getting too high. When there is higher inflation it causes interest rates to rise and lending to decline. Deflation causes more lending and better interest rates. Inflation reduces the relative value of a currency and is bad for savers.

Employment determines the citizens’ wealth and economic success. This makes employment indicators like unemployment and payroll data, income trends (earning more or less), total labor force, and percentage employed telling. These numbers are particularly important in developed countries that see most of their national income created by consumer spending. Declines in consumer spending often lead to an increase in unemployment. This in turn feeds into lower GDP numbers.

PMI manufacturing and services is part of the Purchasing Manager’s Index. Markit Group developed this with the Institute for Supply Management. They survey businesses every month to learn about business purchasing manager’s activities in acquiring input goods and services. The most crucial of these surveys are the PMI Services and PMI Manufacturing indices. These are considered to be important leading economic indicators. When demand for business products declines then companies will decrease their buying of raw materials instantly. This gives a picture of problems in an economy long before consumer spending or retail sales figures will.

Central banks play such an important role in any nation’s economy that their releases are very important. Markets study every word that comes from central bankers to learn what is in store in the future. Central bank minutes prove to be the official information releases that give out useful commentary on the economy and signal what actions the central bank will take in the future.

The United States has the Federal Reserve. It provides its well known beige book. In this book are economic conditions related anecdotally by each of the branches of the Federal Reserve Bank. These types of notes are also released by a great number of other central banks. Among these are the Bank of England, European Central Bank, and Bank of Japan. They are released publically on a routine schedule. Central bank minutes releases also give a clue as to when the group will raise or lower the national interest rates which affects everything from consumer and business lending activity to savings deposit rates.

The term 'Economic Indicators' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.