Economic indicators are indices or data that are shown in statistical values, which allow us to represent an economic reality in a quantitative and direct way. They are generally statistics that assume the measurement of a variable during a given period.

The economic indicators themselves reflect the behavior of the main economic variables, and are used to anticipate, correct and optimize the results that are measured at that time in the economy, whether of a country, a company or a world level.

The interpretation of the indicator serves to know the situation of the economy and make projections, and it is essential for all countries, since on the basis of these important monetary or fiscal policy decisions can be made and they are signals that the market gives so that the investors and economic agents take their precautions.

Benefits of economic indicators

Among the benefits provided by economic indicators we have:

  • They provide evaluation to events to be able to track it.
  • They offer performance and give the necessary support for the achievement of the objectives, since they warn if there is an approach or it is too far from the goal.
  • Projects land on results and ways to measure them.
  • They make it easy to identify and disclose data so that everyone understands the same concept.
  • The economic indicators are precise, clear and exact, having a minimum imprecision of the information they transmit.

Characteristics of the economic indicators

The characteristics of economic indicators have the following qualities:

  • Relevance. This refers to the fact that the indicator must be effective in relation to an important objective.
  • They are measurable. By having the data of the indicators, the results obtained from the variables can be compared in relation to the result.
  • They are Specific . The information obtained from the indicators has to be specific without leaving room for confusion.
  • They have Ease of Access . The information on the indicators should be obtained regularly and frequently.
  • They are Generic . This gives the economic indicators the coverage and relevance to be taken into account.

Importance of indicators

Economic indicators are one of the most important parts of the economy, especially for countries at the governmental level, since they try to understand, relate and interpret these indicators, to act in anticipation of the changes that are to come.

Among the most important points of the economic indicators we can highlight:

  • It facilitates the measurement of changes in the situation or economic condition over time.
  • They allow you to look closely at the results of the initiatives or actions taken.
  • They are instruments of great importance for monitoring and evaluating the economic development process of a given region.
  • They are a valuable means of guiding how to achieve better results in economic development projects.

Types of economic indicators

The information provided by the different economic indicators has very important implications for companies, employees and for the economy in general. There are three types of indicators, which are:

The main indicators.

The main indicators reflect the data that warns what can happen in the economy in the following months or years. Some examples of leading indicators, which can show where the economy is heading, include:

  • Retail sales.
  • The inventory levels of the companies.
  • Manufacturing activity.
  • Building permits.
  • The prices of the houses.

The Lag Indicators.

Lagging indicators are measures of economic data from previous months, reflecting improvement or deterioration in response to the direction of the overall economy. For example, in a recession, they will typically show declining income and wages.

Some examples of lagging indicators, which show how the economy has responded to your situation, include:

  • Gross Domestic Product (GDP).
  • Inflation.
  • Income and wages.
  • Household indebtedness.
  • Interest rates.
  • Unemployment.
  • Business profits.

Matching Indicators.

Matching indicators measure the current state of a country’s economy. Some examples of coincident indicators, which demonstrate weakness or strength in line with the current economy, include:

  • Consumer price inflation.
  • Producer prices.
  • Demand for income levels.
  • Industrial production
  • The average of the working hours.

All these indicators offer a vision of the general situation of the economy of a country. If enough attention is paid to these data, rulers can know where nations are going, their labor market and even the cost of housing.

What are the main economic indicators?

There are many types of important indicators, but the ones that are distinguished in the use of the economy are:

Gross domestic product (GDP). It is the main and most important indicator of the economy, because the GDP measures the total of goods produced within the borders of a nation. This indicator is measured as a percentage on a quarterly and annual basis. Decreasing percentages of GDP may indicate a future economic recession.

The consumer price index (CPI). This economic indicator is responsible for measuring the inflation of an economy. Inflation is commonly defined as too many dollars chasing too little goods. The consumer price index measures inflation by calculating the evolution of the cost of a basket of consumer goods and services.

The producer price index (PPI) . The PPI measures price changes in a set of goods at the wholesale level. This tracks changes in the inflation of raw materials, such as raw materials, intermediates, and finishes. Raw products represent the raw materials used by manufacturers and production companies. Intermediate goods are used to produce larger products.

Employment indicators. They include the unemployment rate, average hours worked per week, and average hourly earnings. These indicators provide information on the degree in business environment and the amount that companies are willing to pay employees.

Retail sales . It is an indicator that records the amount of spending in an economy. This indicator provides information on the amount of money that consumers are spending on various goods and services in the economic market.

Consumer confidence . It is the most common economic indicator, providing information on what individual consumers believe about current economic conditions. Consumer confidence often affects other indicators.

S&P 500 Stock Index. This index is designed to measure changes in the stock prices of component companies. It serves to determine a measure of the capital stock of a nation, as well as it is an indicator of the confidence levels of future businesses and consumers. Growth in the S&P 500 index can translate into growth in business investment.

Classification of economic indicators

Classification based on trend

The trend is used as a criterion to relate the economic indicators, in comparison with the economy in general and these in turn are classified as:

  • Procyclical economic indicators: these develop in the same direction as the economy. If the development of the economy is positive, then its evolution is also positive and if it is negative, its evolution will also be negative.
  • Countercyclical economic indicators: The evolution of these indicators is in the opposite direction of the general economy.
  • Acyclical economic indicators: In this case the evolution of the indicators is very small, in relation to the development of the economy. Its price can go up or down at different times in the economic cycle.

Classification according to the economic field

This classification refers to the primary economic environment in which the indicator is used. In this case we have the following:

  • Economic indicators of economic growth : The most important indicator of this classification for the study of economic development is the Gross Domestic Product (GDP) and its derivatives.
  • Economic indicators of the labor market situation: These indicators use the unemployment rate, the employment rate and the activity rate.
  • Economic price indicators : These indicators are based on the Consumer Price Index (CPI). This index is used to quantify the prices of the basic basket, measure salary increases or increase in pensions. Also taken into account for the index of export prices and industrial prices, the price of money and their respective interests.
  • Economic indicators of the public sector accounts: these are all the indicators that are related to the public sector budget.
  • Economic indicators of accounts with abroad: these economic indicators are used in the study of the economic activities of accounts held abroad.

How to provide good economic indicators?

The criteria for the construction of good economic indicators are:

  1. Measurability: it is the ability to measure or systematize what is intended to be known.
  2. Analysis: ability to perceive certain quantitative or qualitative aspects of the realities that it intends to systematize or measure.
  3. Relevance: it is the ability to express what it is intended to measure.

conclusion

We can conclude that economic indicators are a vital source for the economy of a country, since their function is measurement in certain areas, not only economic, but also work, consumption, sales, among others. All this in order to predict the country’s economy, see its progress and avoid inflation.

Samantha Robson
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Dr. Samantha Robson ( CRN: 0510146-5) is a nutritionist and website content reviewer related to her area of ​​expertise. With a postgraduate degree in Nutrition from The University of Arizona, she is a specialist in Sports Nutrition from Oxford University and is also a member of the International Society of Sports Nutrition.

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