Macroeconomics is “the study of how households and firms make decisions and how they interact in markets”(Mankiw, 2012, p. 29). While microeconomics is “the study of economywide phenomena, including inflation, unemployment, and economic growth”(Mankiw, 2012, p. 29). Understanding economic indicators is an integral part of assessing the economy as a whole. Economic indicators allow the government, businesses, and consumers, alike, to analyze and predict the future status of the economy. It is important to recognize the source of changes and how they ultimately, affect the economy. This paper will explain six economic indicators: Gross domestic product (GDP), unemployment, productivity, consumer price index (CPI), money supply, and consumer credit report. It will also explain the business cycle, why they it is utilized and show the importance through charts and graphs,
“Economic indicators are key statistics showing the state of the economy. These include the average workweek, weekly claims for unemployment insurance, new orders, vendor performance, stock prices, and changes in the money supply”(Friedman, 2012, p.225).
Leading Economic Indicators
“Leading indicators are economic statistics that often change direction before the general economy changes. Stock market indexes are considered leading indicators, as stock indexes often decline before the economy declines and improve before the general economy recovers from a recession. Leading economic indicators therefore help predict the future economy”(Friedman, 2012, p. 396).
Lagging Economic Indicators
“Lagging Indicators are economic indicators that change after a change in the economy has occurred. Lagging indicators are observed as a means of confirming trends”(Friedman, 2012, p.391).
Definition – Gross Domestic Product is (GDP) “a figure that represents the total value of all goods and services produced in a country in a given time period. More simply, it is a measure of the total size of an economy “(Riggs, 2008, p. 96). How is the economic indicator determined? “It is calculated using the selling prices in the period in question of the “final” goods”(Kolb2008, p. 1044). “Government economists calculate GDP every quarter (in the financial world, each year is commonly broken down, for purposes of analysis, into four three-month periods called quarters), as well as yearly. It is used by government officials as an aid in creating policies, by business leaders in making business decisions, and by economists to improve their understanding of the economy”(Riggs, 2008, p. 96). What it measures? “In order to avoid counting certain goods (those that are part of other goods) multiple times, GDP measures only what are known as final products, or products that are sold to consumers on the open market” (Riggs, 2008, p.96). Strengths, weakness, problems, or criticisms
Strengths (Barnes, 2013):
GDP is considered the broadest indicator of economic output and growth. •
Real GDP takes inflation into account, allowing for comparisons against other historical time periods. •
The Bureau of Economic Analysis issues its own analysis document with each GDP release, which is a great investor tool for analyzing figures and trends, and reading highlights of the very lengthy full release Weakness (Barnes, 2013):
Data is not very timely - it is only released quarterly. •
Revisions can change historical figures measurably (the difference between 3% and 3.5% GDP growth is a big one in terms of monetary policy) Historical Data – GDP reflects how much we would actually pay for something and is therefore, the market value. The chart below reflects GDP from 2007 through 2012. it is a reflection of the market value of all final goods and services, produced within the country between this period.
GROSS DOMESTIC PRODUCT
Definition – Unemployment is “the state of...
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