Economic Indicators

• An economic indicator is a statistic about an economic activity.

• Economic indicators allow analysis of economic performance
and predictions of future performance.
• One application of economic indicators is the study of business
cycles.
• Economic indicators include various indices, earnings reports,
and economic summaries.

Examples: unemployment rate, quits rate, consumer price index (a

measure for inflation), consumer leverage ratio, industrial
production, bankruptcies, gross domestic product, broadband
internet penetration, retail sales, stock market prices
 Gross Domestic Product (GDP)
• The gross domestic product (GDP) is one of the
primary indicators used to gauge the health of a
country's economy.
• It represents the total dollar value of all goods and
services produced over a specific time period.
• Usually, GDP is expressed as a comparison to the
previous quarter or year. For example, if the year-
to-year GDP is up 3%, this mean that the economy
has grown up by 3% over the last year.
 Gross Domestic Product (GDP)
The monetary value of all the finished goods and services produced
within a country's borders in a specific time period, though GDP is
usually calculated on an annual basis. It includes all of private and
public consumption, government outlays, investments and exports
less imports that occur within a defined territory.
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer spending, in a
nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital (funds
used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or
equipment. This type of financial outlay is also made by companies to maintain or increase the scope of their
operations.)
"NX" is the nation's total net exports, calculated as total exports
minus total imports. (NX = Exports - Imports)
 GDP
• Measuring GDP is complicated but at its most basic,
the calculation can be done in one of two ways:
• either by adding up what everyone earned in a year (income
approach),
• or by adding up what everyone spent (expenditure method).
Logically, both measures should arrive at roughly the same total.
• The income approach, which is sometimes referred to
as GDP(I), is calculated by adding up total
compensation to employees, gross profits for
incorporated and non incorporated firms, and taxes
less any subsidies. The expenditure method is the
more common approach and is calculated by adding
total consumption, investment, government spending
and net exports
GDP represents economic production and growth,
that has a large impact on nearly everyone within
that economy.
For example, when the economy is healthy, means
low unemployment and wage increases as
businesses demand labor to meet the growing
economy.
A significant change in GDP, whether up or down,
usually has a significant effect on the stock market.
Bad economy usually means lower profits for
companies, which in turn means lower stock prices.
Investors really worry about negative GDP growth,
which is one of the factors economists use to
determine whether an economy is in a recession.
 Gross National Product (GNP)
• An economic statistic that includes GDP, plus
any income earned by residents from overseas
investments, minus income earned within the
domestic economy by overseas residents.
• GNP is a measure of a country's economic
performance, or what its citizens produced
(i.e. goods and services) and whether they
produced these items within its borders.
 Employment
• A situation in which all available labor resources are
being used in the most economically efficient way.
• Full employment embodies the highest amount of
skilled and unskilled labor that could be employed
within an economy at any given time. The remaining
unemployment is frictional.
• Frictional unemployment is the amount of
unemployment that results from workers who are in
between jobs, but are still in the labor force
 Inflation
• The rate at which the general level of prices for goods
and services is rising, and, subsequently, purchasing
power is falling.
• Central banks attempt to stop severe inflation, along with
severe deflation, in an attempt to keep the excessive
growth of prices to a minimum.
• For Example: As inflation rises, every dollar will buy a
smaller percentage of a good. For example, if the
inflation rate is 2%, then a $1 item will cost $1.02 in a
year.
• Most countries central banks tries to sustain an inflation
rate of 2-3%.
 Consumer Price Index (CPI)
• The CPI does not include every item an individual may buy,
but instead takes a sampling of several hundred goods and
services across 200 item categories (such as transportation, food
and medical care). Data is collected through phone calls and
personal visits in urban areas across the country.
It is calculated by taking price changes for each item in the predetermined
basket of goods and averaging them
• The CPI does not include income, Social Security taxes, or
investments in stocks, bonds or life insurance. But it does
include all sales taxes associated with the purchases of those
goods and services.
 Producers Price Index (PPI)

• The PPI tracks price changes in virtually all

goods-producing sectors, including
agriculture, forestry, fisheries, mining and
manufacturing.
• This report measures prices for goods at three
stages of production: finished goods,
intermediate goods and crude goods.
• This was called the Wholesale Price Index
from 1902 until 1978.