An economic indicator is a

statistic A statistic (singular) or sample statistic is any quantity computed from values in a sample which is considered for a statistical purpose. Statistical purposes include estimating a population parameter, describing a sample, or evaluating a hypot ...

about an

economic activity Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyse ...

. Economic indicators allow analysis of economic performance and

prediction A prediction (Latin ''præ-'', "before," and ''dictum'', "something said") or forecast is a statement about a future event or about future data. Predictions are often, but not always, based upon experience or knowledge of forecasters. There ...

s of future performance. One application of economic indicators is the study of

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

s. Economic indicators include various indices, earnings reports, and economic summaries: for example, the

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

rate, quits rate (quit rate in American English), housing starts,

consumer price index A consumer price index (CPI) is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of Goods, consumer goods and ...

(a measure for

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

inverted yield curve In finance, an inverted yield curve is a yield curve in which short-term debt instruments (typically bonds) have a greater yield than longer term bonds. An inverted yield curve is an unusual phenomenon; bonds with shorter maturities generally ...

, consumer leverage ratio,

industrial production Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of gross domestic product (GDP), they ...

bankruptcies Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...

gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

, broadband internet penetration, retail sales,

price index A price index (''plural'': "price indices" or "price indexes") is a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a specific region over a defined time period. It is a statistic ...

, and changes in

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

conditions. The leading business cycle dating committee in the

United States of America The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 states and a federal capital district, Washington, D.C. The 48 contiguo ...

is the private

National Bureau of Economic Research The National Bureau of Economic Research (NBER) is an American private nonprofit research organization "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic co ...

. The

Bureau of Labor Statistics The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the government of the United States, U.S. government in the broad field of labor economics, labor economics and ...

is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics. Other producers of economic indicators includes the

United States Census Bureau The United States Census Bureau, officially the Bureau of the Census, is a principal agency of the Federal statistical system, U.S. federal statistical system, responsible for producing data about the American people and American economy, econ ...

and United States

Bureau of Economic Analysis The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official macroeconomic and industry statistics, most notably reports about the gross domestic product (GDP) of the United ...

Classification by timing

Economic indicators can be classified into three categories according to their usual timing in relation to the business cycle: leading indicators, lagging indicators, and coincident indicators.

Leading indicators

Leading indicators are indicators that usually, but not always, change before the economy as a whole changes. They are therefore useful as short-term predictors of the economy. Leading indicators include the index of consumer expectations, building permits, and credit conditions. The Conference Board publishes a composite Leading Economic Index consisting of ten indicators designed to predict activity in the U. S. economy six to nine months in future. Components of the Conference Board's Leading Economic Indicators Index: #Average weekly hours (manufacturing) — Adjustments to the working hours of existing employees are usually made in advance of new hires or layoffs, which is why the measure of average weekly hours is a leading indicator for changes in unemployment. #Average weekly initial jobless claims for unemployment insurance — The CB reverses the value of this component from positive to negative because a positive reading indicates a loss in jobs. The initial jobless-claims data is more sensitive to business conditions than other measures of unemployment, and as such leads the monthly unemployment data released by the

U.S. Department of Labor The United States Department of Labor (DOL) is one of the executive departments of the U.S. federal government. It is responsible for the administration of federal laws governing occupational safety and health, wage and hour standards, unem ...

. #Manufacturers' new orders for consumer goods/materials — This component is considered a leading indicator because increases in new orders for consumer goods and materials usually mean positive changes in actual production. The new orders decrease inventory and contribute to unfilled orders, a precursor to future revenue. #Vendor performance (slower deliveries diffusion index) — This component measures the time it takes to deliver orders to industrial companies. Vendor performance leads the business cycle because an increase in delivery time can indicate rising demand for manufacturing supplies. Vendor performance is measured by a monthly survey from the National Association of Purchasing Managers (NAPM). This diffusion index measures one-half of the respondents reporting no change and all respondents reporting slower deliveries. #Manufacturers' new orders for non-defense

capital goods In economics, capital goods or capital are "those durable produced goods that are in turn used as productive inputs for further production" of goods and services. A typical example is the machinery used in a factory. At the macroeconomic level, ...

— As stated above, new orders lead the business cycle because increases in orders usually mean positive changes in actual production and perhaps rising demand. This measure is the producer's counterpart of new orders for consumer goods/materials component (#3). #Building permits for new private housing units. #Stock prices of 500 common stocks — Equity market returns are considered a leading indicator because changes in stock prices reflect investors' expectations for the future of the economy and interest rates. EquityBDP

#Leading Credit Index - a composite index developed by the Conference Board consisting of six financial indicators such as yield spreads, loan survey information and investor sentiment #Interest rate spread (10-year Treasury vs. Federal Funds target) — The

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

spread is often referred to as the yield curve and implies the expected direction of short-, medium- and long-term interest rates. Changes in the

yield curve In finance, the yield curve is a graph which depicts how the Yield to maturity, yields on debt instruments – such as bonds – vary as a function of their years remaining to Maturity (finance), maturity. Typically, the graph's horizontal ...

have been the most accurate predictors of downturns in the economic cycle. This is particularly true when the curve becomes inverted, that is, when the longer-term returns are expected to be less than the short rates. #Index of consumer expectations — This is the only component of the leading indicators that is based solely on expectations. This component leads the business cycle because consumer expectations can indicate future

consumer spending Consumer spending is the total money spent on final goods and services by individuals and households. There are two components of consumer spending: induced consumption (which is affected by the level of income) and autonomous consumption (which ...

or tightening. The data for this component comes from the

University of Michigan The University of Michigan (U-M, U of M, or Michigan) is a public university, public research university in Ann Arbor, Michigan, United States. Founded in 1817, it is the oldest institution of higher education in the state. The University of Mi ...

's Survey Research Center, and is released once a month. Economist D.W. Mackenzie suggests that th
ratio of private to public employment
may also be useful as a leading economic indicator.

Lagging indicators

Lagging indicators are indicators that usually change after the economy as a whole does. Typically the lag is a few quarters of a year. The unemployment rate is a lagging indicator: employment tends to increase two or three quarters after an upturn in the general economy.. In a performance measuring system, profit earned by a business is a lagging indicator as it reflects a historical performance; similarly, improved customer satisfaction is the result of initiatives taken in the past. The Index of Lagging Indicators is published monthly by The Conference Board, a non-governmental organization, which determines the value of the index from seven components. The Index tends to ''follow'' changes in the overall economy. The components on the Conference Board's index are: * The average duration of

(inverted) * The value of outstanding commercial and industrial

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

s * The change in the

Consumer Price Index A consumer price index (CPI) is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of Goods, consumer goods and ...

for services * The change in labour cost per unit of output * The ratio of manufacturing and trade inventories to sales * The ratio of consumer credit outstanding to personal income * The average prime rate charged by banks FedfundsCAP

Coincident indicators

Coincident indicators change at approximately the same time as the whole economy, thereby providing information about the current state of the economy. There are many coincident economic indicators, such as

Gross Domestic Product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

, industrial production, personal income and retail sales. A coincident index may be used to identify, after the fact, the dates of peaks and troughs in the business cycle. There are four economic statistics comprising the Index of Coincident Economic Indicators: * Number of employees on non-agricultural payrolls *

Personal income In economics, personal income refers to the total earnings of an individual from various sources such as wages, investment ventures, and other sources of income. It encompasses all the products and money received by an individual. Personal inco ...

less transfer payments * Industrial production * Manufacturing and trade sale The Philadelphia Federal Reserve produces state-level coincident indexes based on 4 state-level variables: * Nonfarm payroll employment * Average hours worked in manufacturing *

Unemployment rate Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work d ...

* Wage and salary disbursements deflated by the consumer price index (U.S. city average)

By direction

There are also three terms that describe an economic indicator's ''direction'' relative to the direction of the general economy: Goodwin2 fredgraph

; Procyclical indicators: move in the same direction as the general economy: they increase when the economy is doing well; decrease when it is doing badly.

Gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

(GDP) is a procyclic indicator. ;

Countercyclical Procyclical and countercyclical variables are variables that fluctuate in a way that is positively or negatively correlated with business cycle fluctuations in gross domestic product (GDP). The scope of the concept may differ between the context ...

indicators: move in the opposite direction to the general economy. The

unemployment rate Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work d ...

and the

wage share A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', '' prevailing wage'', and ''yearly bonuses,'' and remune ...

are countercyclic: in the short run they rise when the economy is deteriorating. ; Acyclical indicators: are those with little or no correlation to the business cycle: they may rise or fall when the general economy is doing well, and may rise or fall when it is not doing well.

Local indicators

Local governments often need to project future tax revenues. The city of San Francisco, for example, uses the price of a one-bedroom apartment on

Craigslist Craigslist (stylized as craigslist) is a privately held American company operating a classified advertisements website with sections devoted to jobs, housing, for sale, items wanted, services, community service, gigs, résumés, and discussi ...

, weekend subway ridership numbers, parking garage usage, and monthly reports on passenger landings at the city's airport.

References

External links