Leading Economic Indicators - Explained
What are Leading Economic Indicators?
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What are Economic Indicators?
Economic indicators are reports that inform about how well the country's economic performance is in a particular location.
How are Economic Indicators Created?
Generally, government authorities or private entities publish such reports on a periodic basis, and create a significant impact on the performance of fixed income, stock, and forex markets.
Following are the significant U.S. economy reports and indicators that are considered for fundamental analysis.
What is Gross Domestic Product (GDP)?
Gross Domestic Product or GDP is the aggregate market value of finished products and services that a country produces in a given period of time, usually one year.
The GDP, referred to as the gross domestic product, is the significant measure for knowing the economic performance of a nation.
The Department of Commerce publishes the retail sales reports at the mid of every month. These reports are strictly monitored, and considers the dollar value or total amounts received by all stores. Retailers from all over the country offer information on sample data based on which retail sales reports are made.
The report, thus prepared, gives insights about the total quantum of merchandise sold by retailers. The report also helps in knowing about the spending capacity of customers.
The Federal Reserve issues the industrial production report every month. It focuses on the changes encountered in the production of factories, mines, and utilities located in the United States. The report also considers evaluating the capacity utilization ratio that ascertains the extent of productive capacity that is being effectively utilized in the economy.
Employment data is issued by the Bureau of Labor Statistics in a report known as the non-farm payrolls. This report is issued on the first Friday of every month. If there is a steady increase in employment, it signifies economic growth. Similarly, decrease in employment rates can cause diminishing economic growth.
Consumer Price Index (CPI)
The Consumer Price Index, known as the CPI is another indicator released by the Bureau of Labor Statistics. It ascertains the extent of changes in the retail prices, or the costs incurred by customers. It is one of the most significant tools for ascertaining inflation in an economy.
The CPI considers using a basket that represents the goods and services of the economy for ascertaining and comparing the changes in price from month to month and year to year. The CPI report is again a significant economic indicator, and its issue can enhance the fluctuations in share, equity, foreign exchange, and fixed income markets. If the price hike is more than the expected rate, it gives a hint of inflation that will consequently lead to depreciation in the underlying currency.
What are Leading Economic Indicators?
The Conference Board publishes the Leading Economic Indicators also known as Composite Index of Leading Indicators to predict any shifts in the global economy.
The index is comprised of 10 economic indicators:
- Employment Figures
- Industrial Production
- Consumer Spending
- Home Sales
- Home Building
- Construction Spending
- Manufacturing Demand
- Retail Sales
How are Leading Economic Indicators Used?
There are many reasons why economists and even businesses use this index. For example, many economists will assess the leading economic indicators if they wish to understand or even predict the movement of the economy. Investors and businesses, on the other hand, can correlate the index with cycles in business and the current economic conditions to know the future economic environment. Here are the 10 components of Leading Economic Indicators:
- Mean weekly hours worked by manufacturing employees
- Mean number of original unemployment insurance applicants
- Amount of new orders that manufacturers make for consumer goods
- Time it takes to deliver new merchandise from suppliers to vendors
- The number of new permits for residential buildings
- New orders for capital goods i.e. those unrelated to defense
- The S&P 500 stock index
- Inflation-adjusted monetary supply in the economy
- Consumer sentiments
- The spread between short and long interest rates
- Rule of Law relate to Economic Growth
- Labor Productivity
- Experience Curve
- Acceleration Principle
- Aggregate Production Function
- How to Measure Productivity
- What is the Effect of Sustained Economic Growth?
- How are compound growth rates and compound interest rates related?
- What are the Components of Economic Growth?
- Porter's Diamond
- What are Growth Accounting Studies?
- What is a Healthy Climate for Economic Growth?
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- BRIC Countries
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- Leading Economic Indicators
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