An economic indicator is a statistic that provides valuable information about the economy. One application of economic indicators is the study of business cycles.
There is no shortage of economic indicators, and trying to follow them all would be an overwhelming task. Thus, economists and businesspeople track only a select few, including those that we’ll now discuss including:
- Earnings reports
- Economic summaries
Examples within these categories include:
- Unemployment rate "Figure 1"
- Quits rate
- Housing starts
- Consumer price index (a measure for inflation)
- Consumer leverage ratio
- Industrial production
- Gross domestic product
- Broadband Internet penetration
- Retail sales
- Stock market prices
- Money supply changes
The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research (private). The Bureau of Labor Statistics 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 and United States Bureau of Economic Analysis.
Lagging Indicators and Leading Indicators
Statistics that report the status of the economy a few months in the past are called lagging economic indicators. One such lagging indicator is the average length of unemployment. If unemployed workers have remained out of work for a long time, we may infer that the economy has been slow.
Indicators that predict the status of the economy three to twelve months into the future are called leading economic indicators. If such a leading indicator rises, the economy is likely to expand in the coming year. If it falls, the economy is likely to slow down.
To predict where the economy is headed, we obviously must examine several leading indicators. It’s also helpful to look at indicators from various sectors of the economy (which might include labor, manufacturing, and housing).
One useful indicator of the outlook for future jobs is the number of new claims for unemployment insurance. This measure tells us how many people recently lost their jobs. If the number of claims is rising, it signals trouble ahead because unemployed consumers can’t buy as many goods and services as they could if they were working and had paychecks coming in.
To gauge the level of goods to be produced in the future (which will translate into future sales) economists look at a statistic called average weekly manufacturing hours. This measure tells us the average number of hours worked per week by production workers in manufacturing industries. If the average numbers of hours is on the rise, the economy will probably improve.
The number of building permits issued is often a good way to assess the strength of the housing market. An increase in this statistic—which tells us how many new housing units are being built—indicates that the economy is improving because increased building brings money into the economy not only through new home sales but also through sales of furniture and appliances to furnish these homes.
Finally, if you want a measure that combines all these economic indicators, as well as others, a private research firm called the Conference Board publishes a U.S. leading index.
To get an idea of what leading economic indicators are telling us about the state of the economy today, go to the “Business” section of the CNN Money website (CNNMoney.com), and click first on “Economy” and then on “Leading Indicators.”
Consumer Confidence Index
The Conference Board also publishes a consumer confidence index based on results of a monthly survey of 5,000 U.S. households. The survey gathers consumers’ opinions on the health of the economy and their plans for future purchases. It’s often a good indicator of consumers’ future buying intent.
For information on current consumer confidence, go to the CNN Money website (CNNMoney.com), click on the “Business” section, and click on “Economy” and on “Consumer Confidence.”