What are the key economic indicators of a country? How do you determine if the country is doing well or not? There are certain factors that cumulatively establish the worth of the country, like its mortality rate, life expectancy, education, but the most common remains its economic indicators. Economic indicators of a country, on numerous occasions, become the countenance of how well a country is doing.
What are Economy Indicators?
Economic indicators are the voluminous reports released by government agencies, NPOs, and private organizations. These reports provide statistical evaluation of a country’s economic health. These indicators account for a number of factors like the total production of goods and services in a financial year, current business cycles, the behavior of consumers and producers, and more. Basic economic indicators may be released daily, weekly, or monthly but the major ones have fixed quarterly or annual cycles.
Before we discuss the major economic reports, one must keep in mind that when we are discussing economic indicators, we are not solely talking about money. These indicators are massive and play a key role in various independent studies and analyses as well.
The Top 10 Leading Economic Indicators
What are the best indicators of a thriving economy? GDP growth is the most important economic indicator of a thriving economy. Of course Industrial production, retail, etc. everything is connected and the growth of GDP usually means the growth of several important economic indicators. Real GDP is adjusted for inflation, while nominal GDP is not adjusted for inflation. The 3 most important economic indicators are CPI, GDP, and Unemployment.
Key Economic Indicators are Real Gross Domestic Product (GDP), Consumer Price Index (CPI), U.S. Nonfarm Payrolls (NFP) Data – Current Employment Statistics (CES), Retail Sales, Producer Price Index (PPI), Consumer Confidence Survey, Money Supply (M2), Housing Starts, Manufacturing and Trade Inventories and Sales.
As we have mentioned earlier, there are numerous economic reports that are published every year. Some of these reports are easy to understand but if you are studying them with the outlook of trade or investment, we advise you to take expert opinion. The data in these reports are highly sensitive and even the slightest change can have a ricocheting effect. The current economic indicators are very precise but you should still not isolate one economic report and judge the country on its basis. However, you are not required to read all of them. So what are the 10 most important economic indicators and how can you use them?
It is essential to identify economic indicators by the importance so the recommendation is to always look: CPI, GDP, and Unemployment and then all other indicators.
Real Gross Domestic Product (GDP)
What is Real GDP?
Gross Domestic Product or GDP is the total value of all the final goods and services produced in a country in one financial year. Economists consider two types of GDPs, one is called Real GDP and the other one is called Nominal GDP. The major difference is that inflation is adjusted when we are talking about Real GDP. It takes into account the change in year-to-year prices.
Here the wealth of a society is measured depending on how fast the profits might grow and what the expected return on capital would be. The HDI considers it a narrower approach as it calculates the health of the economy against the monetary increase or decreases only.
Its importance?
The Real GDP provides some data that helps the central or federal banks in adjusting their monetary policies.
From where can you get the data?
You can read the data on various government sites. For example, in the U.S.A, the report is issued by the Department of Commerce’s Bureau of Economic Analysis. You can view it at www.bea.gov. It is released quarterly after revisions are made. The data has ‘advance estimates’, ‘preliminary estimates’, and the ‘final numbers’. Along with the data, the reasons for the increase or the decrease in GDP are also explained.
Consumer Price Index (CPI)
What is the Consumer price index (CPI)
The consumer price index is based on the relationship between consumers and their purchasing power. It notes the average price level fluctuation in the goods and services purchased by urban households in a month. It focuses on the cost of living. The fluctuation in the level of money spent on products and services helps in determining the inflation rate.
CPI is based on averages, that is, it will not consider every item that an individual will buy but will collect information about several goods and services spread in over 200 item categories. This data can be collected virtually or by visiting urban areas. As the data is more focused on the expenditure on consumable products and services, it excludes income, investments in bonds, life insurance or stocks, and Social Security taxes. However, the sales tax is included in the data as it is paid directly by the consumer when they make a purchase.
Its importance?
CPI is one of the best economic indicators that is used to understand the level of inflation prevailing in a country. It is closely read by financial economists who make assumptions about the directions in which the economy may move by utilizing this data. Changes in the inflation level alert the Federal Bank that it is time to change the monetary policy.
From where can you get the data?
In the U.S., BLS is responsible for this task. They sample all the urban areas on an average and release the CPI on a monthly basis. CPIs for three metropolitans are released every month while it is done on a bi-monthly basis for other metropolitans. The report is highly specific and you can find it on www.bls.gov/cpi/home.htm.
U.S. Nonfarm Payrolls (NFP) Data – Current Employment Statistics (CES)
Non-Farm Payroll or NFP represents the change in the number of people employed outside the agricultural sector (industry, public sector, services, etc.). An increase in employees could potentially strengthen the currency, while a decline could weaken it. Why is the agricultural industry not included in the report? We will answer immediately! Weather conditions and seasonal changes (mostly) affect the farm sector, while other sectors are more strongly related to their economic needs. That is why the report is called Non-Farms Payrolls. Non-farm payroll report dates you can analyze on our website.
What is Current Employment Statistics?
As the name suggests, CES is related to employment and earnings across non-agricultural industries like civil government workers. It talks about the current situation rather than in the past. It is a survey that is conducted every month by the Bureau of Labor Statistics to know about employment, wages, unemployment, working hours, and earnings based on the company payroll. It has a broader approach as the research is disseminated in many ways, including the rate of employment/unemployment among different genders and ethnic groups.
The survey is based on the information gathered from 300,000 establishments across 600 industries. This is approximately one-third of the total employees who belong to the formal sector. The survey relies on hours of working. Therefore, when we talk about employed personnel, we are considering both full-time and part-time employees who receive a certain income for the hours that they have worked for. Even the employees on paid vacations and sick leaves are included in this survey. However, it does not include unpaid family members, volunteers, self-employed people. In other words, a person will be covered in this survey if they are on the payroll of a company.
Its importance?
When we are talking about the indicators of a strong economy, CES is deemed prominent as it is the earliest report that is released every month. Economists pay special attention to CES as it tells about the employment and wage trend in the non-agriculture sector. It talks about how many jobs have been lost or gained in that month, and how many people have earned above the minimum wage.
The trends derived from the payroll data are also interesting. You can get to know how many hours have people worked on an average and how were they compensated on an hourly basis. It is important to understand these trends as they tell the authorities about wage inflation.
From where can you get the data?
You can get the data from www.bls.gov/ces/home.htm. It is shared by the Department of Labor’s Bureau of Labor Statistics in the U.S.
Retail Sales
Retail sales in the USA is a report that shows changes in the volume of sales in retail stores every month. It is published two weeks after the reference month (data are for the last month). The U.S. Department of Commerce issues it. Retail volume is one of the indicators of consumer consumption, so as an indicator of consumer demand and consumer confidence, it can serve as a guide for currency markets. This indicator is divided into: “car sales” and “sales of everything else.” Since the number of vehicles is a very volatile value, more accurate information is provided by the part of the indicator that does not include “car sales,” ie, U.S.Core retail sales.
The growth of retail volume is a positive factor for the development of the national economy and leads to an increase in the national currency value. The indicator marks the strength of consumer demand. Its growth indicates an increase in the production of goods, strengthening the economy and currencies.
What is Retail Trade Sales And Food Services Sales?
As one of the top 8 economic indicators, this one identifies the increase or decrease in the sales of different food-oriented sectors. The retail and foodservice sales changes are measured every month and the reports are released.
5000 random samples from retail and food service firms are taken for consideration. The sales have corresponded to the present three million firms of the country that fall into this category.
Its importance?
Two-thirds of U.S. annual GDP comprises of spending on the consumption of foo-related items or services. An acceleration or declaration in the spending trends can help the analysts to identify future spending habits.
From where can you get the data?
The responsible department releases this data monthly. You can get the details at https://www.census.gov/.
Producer Price Index (PPI)
What is the Producer Price Index (PPI)?
Like the CPI is measured from the consumers’ perspective, the PPI is measured from the producers’ perspective. It is more like a business equivalent to the CPI. The PPI calculates the average change in the selling price of goods and services that are produced over a specific time period. It takes into consideration the price movements that happen at the wholesale level rather than the price changes that take place at the retail levels.
When we are calculating the GDP, we consider the final price of all the goods and services to avoid double counting but in PPI, we measure the prices throughout the stages of production – crude goods, intermediate goods, and the final goods to check the price movement.
Its importance?
The PPI provides the first step of inflation as it can be detected by analyzing the price movements of crude goods. If detected on time, the inflation can be controlled by intervening at its primary stage. This way, there will not be inflation in the CPI and the economy will function smoothly. To identify economic indicators is crucial.
From where can you get the data?
The Department of Labor’s Bureau of Labor Statistics takes care of both PPI and CPI. They release the data monthly. You can get the report during the second full week of the month. You can access the report at www.bls.gov/ppi/home.htm.
Consumer Confidence Survey
What is the Consumer Confidence Survey?
The Consumer Confidence Survey provides good economic data about the nation’s trust in the economy. It reflects the degree of optimism that people have towards the U.S. economy. It is depicted by their savings and spending activities.
To know whether the public is optimist or pessimist towards the economy, around some random 5000 people are asked to participate in a survey. It is not mandatory for everyone. These participants are asked questions about the labor market, their spending behavior, business conditions, their financial and professional growth expectations for the next six months, or more. The survey is not point-based. The individuals are asked to choose among the three options: positive, neutral, and negative.
Its importance?
As a rule of thumb, a person is reluctant to spend money when there is no job security. They will be more encouraged to save and may even reduce their monthly expenditure on the basic necessities. This is not a sign of a positive economy. On the contrary, a person spends more when they are confident that their income will not stop. They are confident about their growth with respect to that of the economy. Such behavior helps policymakers about the health of the economy.
From where can you get the data?
The data is released on the last Tuesday of each month by the Conference Board’s Consumer Research Center. You can get the full report at http://www.conference-board.org/data/consumerconfidence.cfm.
Money Supply (M2)
What is Money Supply (M2)?
In macroeconomics, Money Supply is referred to the total value of money that is available for circulation in a country at a given point of time. As one of the five major economic indicators used by the Forex traders, the data of M2 is strictly based on the physical currency available like coins, bills, demand deposits, fixed deposits, traveler’s checks, assets in retail money market accounts, mutual funds that are less than $100,000, or other term deposits.
The data is exclusive of institutional money fund assets or time deposits that are more than $100,000.
Its importance?
The key economic figures supplied by this data allow the banks to review the current financial and economic conditions of the country. After considering the stats, they alter their monetary policies by lowering or increasing interest rates. This is done to control the circulation of money in the economy.
M2 is helpful for economists as well as they use the data to make predictions about the cyclical economic recessions. The same data is used to determine the possible recovery time and changes in stock prices. You can use M2 to speculate about changes in the monetary policies.
While M2 has been around for a while, with the introduction of new indicators, its importance has declined over the last two decades. This is because the new economic indicators are more adept in keeping up with the movement of money like transfer of funds from savings accounts to investment accounts, the internationalization of the economy, and the new depository products. These things can render M2 redundant as it can easily go out of sync when tracking these movements.
However, let’s not neglect that M2 does have great use when we are talking about long-term analysis. Banks and economists do deploy this data to assess the long-term growth or reduction in currency circulation. The interest rate is decreased to give a jolt to the sluggish economy and to increase the money supply while the opposite is done to control the flow of money when the economy is overheated.
From where can you get the data?
In the U.S., the Board of Governors of the Federal Reserve System is responsible for releasing the data. It is done weekly (on Thursdays), and monthly. This data has become a staple for the researchers as well and has been getting published since January 1959. You can find the details at www.federalreserve.gov/releases/h6.
Housing Starts (Earlier called “New Residential Construction”)
What is Housing Starts?
Housing Starts includes the new residential constructions that start during a particular month. It is an essential economic factor to consider. When construction begins on the footings or foundations of a residence owned by a single-family or under multiple-unit buildings, it becomes a part of that month’s Housing Starts. The data depicts the monthly permits that were issued for residential construction and the number of projects that have finished.
Its importance?
It is one of the best indicators of a strong economy because you would pay for the construction of a house when you are doing well in other areas of your life. From the analysts’ point of view, they get to see how the change in mortgage rate affects Housing Starts. This is a highly volatile indicator. A change in Housing Starts can affect the financial conditions of the nation. Economists can figure out long-term trends by reading the housing starts.
From where can you get the data?
The U.S. Department of Commerce’s U.S. Census Bureau is responsible for collecting and publishing the monthly Housing Start data. You can find it online at https://www.census.gov/topics/business-economy.html.
Manufacturing and Trade Inventories and Sales
What is Manufacturing and Trade Inventories and Sales?
The collective data of shipments by manufacturers and the value of trade sales along with the value of wholesale and retail inventories, of a particular month provide the data for manufacturing and Trade Inventories and Sales. The data shows the approximate ratio between inventories and sales. That is, how long will the inventories last if the sales continue at the same rate.
Its importance?
This data is the primary source that shows business inventories: business sales. Analysts use this data to identify whether the economy is growing or contracting. If the inventories are growing faster than sales, it means that the economy is slow as people are purchasing less. The economy is flourishing if the sales surpass inventories.
From where can you get the data?
The data is released by the Department of Commerce’s U.S. Census Bureau. You can find more details at https://www.census.gov/topics/business-economy.html.
On the end, this is not a report but it is an excellent fundamental indicator of the US economy:
S&P 500 Stock Index (the S&P 500)
What is the S&P 500?
The S&P 500 stands for Standard and Poor 500. It is an index that shows the market value of 500 stocks that are publicly owned and placed in one equity basket. This basket has now become the industry benchmark for the performance of the U.S. equity markets.
Its importance?
The index shows the changes in the stock prices of the 500 companies. Economists use it to measure the nation’s stock of capital and make estimations about the consumers’ confidence in the economy. It can signal long-term trends in stocks and futures markets.
From where can you get the data?
Standard & Poor’s gathers the data and releases this index. It shows real-time information as well. You can track it at https://www.standardandpoors.com.
