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An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance.
Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for inflation), industrial production, bankruptcies, Gross Domestic Product, retail sales, stock market prices, and money supply changes.
Economic indicators are primarily studied in a branch of macroeconomics called "business cycles". The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research.
The Bureau of Labor Statistics is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics.
Types of Indicators
Leading, Coincident, Lagging
Coincident indicators are indicators which occur at the same time as the economic activity.
Example:
- Payroll
- Personal income less transfer payments
Leading indicators are economic indicators which tend to change before the general economic activity.
Example:
- Stock prices
- Average work hours in manufacturing sector
Lagging indicators trail behind the general economic activity.
Example:
- Unemployment rate
- Percentage change in CPI
The time difference between the indicator and the economic activity is called lead time or lag time.
Correlation
An indicator can also move in the same or opposite direction of the general economic activity. Pro-cyclical indicators move in the same direction as the general economic activity. Counter-cyclical indicators move in the inverse direction of the general economic activity. Unemployment is an example of a counter-cyclical indicator. Statistically, correlation can be used to determine whether an indicator is pro- or counter-cyclical.
See also
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