Direct signals are macro indicator signals of what is directly being measured. For example, the consumer price index for urban consumers tells us what is happening to the general price level of consumer goods in US urban locations. Another example of a direct signal would be the unemployment rate since it measures the percent of labor force that is unemployed. Indirect signals come from watching the movement of causally related indicators, and drawing conclusions about one from the movement of the other. For example, if lenders feel that inflation is going to rise in the future (i.e. inflationary expectations rise) then they will require borrowers to pay a premium, and thus, a higher interest rate as compensation for the expected decline in the value of the dollar. Retail sales can also be used as a good example to analyze the various direct and indirect macroeconomic signals. Because consumer spending accounts for two thirds of the economy, and retail sales account for nearly half of total consumer spending, retails sales is a key indicator of the economy’s health. Since the retail sales data are extremely volatile from month to month, it would be more reliable to analyze the retail sales data in a 3 months to the previous 3 months analysis rather than month to month. Foremost, retail sales is a direct indicator that tracks the money value of goods sold within the retail trade by taking a sampling of entities involved in the business of selling end products to users. Retail sales also give a direct signal on the consumers’ appetite on spending on goods. That is, it reflects the strength of consumer spending as well as the degree of optimism that consumers are conveying for the state of the economy through their spending activity and savings. Further, retail sales provide a direct indicator for an economic slowdown or an economic boom.
When analyzing indirect macroeconomic signals that may be contained in a three-month analysis of retail sales data, retail...
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