We’ve seen our economy ebb and flow over the last few years. Reports come out and economists and financial experts weigh in on the data. Do you know where they are getting their information from? Do you know what to look for in the reports so you can better understand what’s happening and what could happen in our economy?
Analysts use economic indicators to interpret current and future investment possibilities as well as the overall health of the economy. Economic indicators are pieces of data that are used to interpret the growth of different sectors as well as broad economic direction. They help investors uncover new investment opportunities so they can update their portfolios, and possibly avoid some investment pitfalls.
Here are the broad indicators that give us a picture of what the economy is doing and possibly could do in the near future.
Leading indicators point to future changes in the economy. They are used for short-term predictions of economic developments because they typically change before the economy does. Some examples of leading indicators are Gross Output (GO), GDP, CPI, and consumer spending.
Lagging Indicators generally come after the economy has changed. These indicators are most helpful when looking to confirm specific patterns. These are then used to make predictions based on the patterns that emerge. These indicators are not used to directly predict economic change. Some examples of lagging indicators are unemployment rate, corporate profits, and labor costs per unit of output.
Coincident Indicators provide useful information about the current state of the economy because they happen at the same time as the changes they signal. Some examples of coincident indicators are industrial production, trade sales volume, and personal income.
Photo by: Markus Spiske
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