An economic indicator is an economic statistic. Economic indicators measure how well the economy is doing and how well it will be doing in the future. Government agencies, including Federal Reserve Board and several economic institutes, release data of economic indicators monthly or quarterly. These various indicators depicts an overall picture of the economy. Investors use the data of these indicators to make their investment decisions.
Overall economic performance
Six economic indicators — gross domestic product, industrial production, personal income, housing starts, unemployment rate, and retail sales — are used to measure the overall economic performance.
- Gross domestic product (GDP). GDP measures the value of all the goods and services earned by a nation within its boundaries. For example, Microsoft’s profits in France is not counted as part of GDP. Gross national product (GNP) measures the value of all the goods and services earned by a nation beyond its boundaries. For example, Microsoft’s profits in France is counted as part of GNP. Its data are released quarterly by Commerce Department. GNP and GDP measure the nation’s economic health. Since December 1991, Commerce Department has been using GDP instead of GNP.
- Industrial production. This indicator or index measures changes in the output of US plants, mines, and utilities. The index is compiled and released monthly by the Federal Reserve Board.
- Personal income. This indicator measures the before-tax income receives by individuals and unincorporated businesses such as wages and salaries, rents, interests, and dividends. It also measures unemployment and Social Security payments. Personal income measures consumers’ spending power. The data are released monthly by the Commerce Department.
- Housing starts. This indicator measures the number of dwelling units on which construction has begun. The data are indicative of the future strength of the housing sector of the economy.
- Unemployment rates. This indicator assesses the likelihood of a recession. The figures are released by the Census Bureau.
- Retail sales. This indicator estimates the total sales at the retail level. It includes every item from grocery to durable goods. It measures the future economic conditions. The data are released by the Commerce Department.
Direction of the economy in the next six to nine months
Composite index of 11 leading indicators are used to predict future changes in economic activity. The index is the barometer for forecasting business trend. It is published monthly by the Commerce Department. It is comprised of:
- Building permits for private housing. Increases indicate business upswings.
- Contracts and orders for plants and equipment. Increases indicate economic upswings.
- Average workweek of workers in manufacturing. Gains indicates increased production.
- Change in unfilled durable orders. Increases indicate business upswings.
- Money supply. Increases indicate economic upturns.
- Sensitive material price. Rises indicate increased production.
- Stock index prices. Rises indicates expected profits and lower interest rates.
- New orders for consumer goods. Rises indicate job growth and increased output.
- Index of consumer expectations. The survey of consumer expectations is done by the University of Michigan. The index measures consumer’ financial conditions and their future outlook.
- Vendor performance. An increase in ordering indicates business upswings.
- Initial unemployment claims. An increase indicates business downturns.
These 11 indicators of the index are adjusted for inflation. Each indicator is weighted. The composite index predicts only in which direction the economy will be going, but it does not predict in what degree the economy is going up or down.
(Readers can access the information and update from the websites of various government agencies mentioned above.)