Economic indicators Free Essays

Economic indicators are used to predict future financial and economic trends. These may include unemployment rates, housing rates, inflation rates etc. There are primarily there types of indicators: Lagging Indicators are those indicators that follow an event. We will write a custom essay sample on Economic indicators or any similar topic only for you Order Now It is generally used to confirm a pattern or indicate an event that is about to occur.   The most popular and commonly used lagging indicator is unemployment. For example a high unemployment rate would indicate that the economy is doing poorly and that companies may anticipate a downturn in future. Other examples of lagging indicators include interest rates, labor costs etc. Lagging indicators usually indicate economic events and changes that follow a particular pattern or trend. They may be used to confirm long term trends but are not very effective in predicting them. (Investopedia) Contemporaneous Indicators are economic events that occur within the same period of time. For example a rise in interest rates is usually associated or is contemporaneous with an increase in inflation. Or high personal income rates are contemporaneous with a strong economy. Leading Indicators are those indicators that signal future events. The most common example of a leading indicator is bond yields. These can be used to anticipate and speculate trends in the stock market. Leading indicators may be used to predict changes in the economy but are not always accurate. An overview of four leading economic indicators is as follows: Stock Market Returns Production Work Week Money Supply Inventory Changes 1. Stock Market Returns Stock market indicators are used to determine when to buy and sell stocks in either a bull or bear market.   These indicators help investors determine the viability of purchasing stocks of a particular company as well as identify that company’s stock value or growth prospects. Common stock market indicators include market cap (total dollar value of all outstanding shares), Price/Earnings Ratio (valuation of a firm’s current share price compared to its per-share earnings), Return on Equity (measure of a company’s profitability), Dividend Yield (income produced by a share of stock) and Price To Book Ratio (comparing a stock’s market value to its book value).   Stock market indicators are primarily used to project financial or economic trends in the stock market and can provide valuable insight about the national output i.e. the GDP and the economic growth of a country. (Superior Investor: Stock Market Resources) 2.   Production Work Week This indicator measures the length of the average work week of production workers in a manufacturing setting.   This is an important indicator as it helps determine monthly industrial production as well as personal income of workers. It is also an important indicator of labor market conditions and can help track developments in areas which can have an impact on the economy. It can provide important information about major economic variables.   For example it can help determine average earnings which help gauge or indicate potential inflation. It can also convey important information about the employment opportunities and unemployment levels of a particular economy. 3.   Money Supply Another common leading economic indicator is money supply. This indicator measures the total supply of money in circulation in a country’s economy at a particular point in time. Money supply is measured in many ways. The most widely used are M1, M2 and M3. M1 refers to the currency in circulation and back checking accounts. It includes all coins, publicly held currency, traveler’s checks, checking accounts and credit union accounts; M2 includes M1 plus any money in savings accounts, small time deposits, overnight repurchase agreements and non-institutional money market accounts. M3 is M2 plus large time deposits, term repurchase agreements and institutional money market accounts. (Leading Economic Indicators: Money Supply TSC Glossary) The money supply indicator is useful in controlling inflation and to ensure that money demand remains stable. It also has a powerful effect on economic activity. An increase in money supply stimulates spending while a decrease results in decreased spending. Decreased spending may result in a decline in economic activity and can cause disinflation or deflation. Money supply is directly linked to inflation. If money supply is growing faster than the real GDP, inflation may result. (MindXpansion on Money Supply) 4. Inventory Changes This indicator measures sales and inventories for the manufacturing, wholesale and retail sectors of the economy. It provides data on the rate of inventory accumulation which in turn helps determine the current pace of economic growth and may also help predict the future pace of economic growth. (Economic Indictors – Federal Reserve Bank of New York) An example of an inventory change indicator is the Inventory to Sales ratio which measures the number of months it takes to deplete existing inventory. Inventory indicators provide important information about economic growth. For example if inventories are accumulating at a rapid pace, it may indicate a slowdown in economic growth in the near future as manufacturers may cut down production to ensure inventories are in line with sales. Similarly, if inventories are growing slowly or decreasing, it may indicate a growth in the economy in the near future and a pick up in production. Works Cited Information about Economic Indicators. Investopedia.com. 27th December 2006. http://www.investopedia.com/ask/answers/177.asp Money Supply Indicator. TCS Glossary. 1st January, 2007. https://www.thestreet.com/tsc/basics/tscglossary/moneysupply.html Money Supply Indicator. MindXpansion. 1st January, 2007. http://www.mindxpansion.com/options/money.php How to cite Economic indicators, Essay examples Economic Indicators Free Essays Housing starts lowest in months Housing starts are the number of new residential construction projects that a re being done at a given time. When housing starts are particularly low it could mean bad news for the economy and also for both large and small businesses. If houses are not being built, pep people are not spending money on the initial construction. We will write a custom essay sample on Economic Indicators or any similar topic only for you Order Now If there’s not construction, there a re no jobs being created. If there are no homes being built then their are no homebuilders esp. ding money on the items to furnish their homes. Therefore small and large businesses are not a able to generate business. 2. ) Fed lowers discount rate and interest rates tumble When the Federal discount rate is low, interest rates tend to be lower as well. This could be a bad indicator for the economy because most times lowering interest rates is a technique used to try to stimulate the economy. The economy only needs stimulated when it is NT doing so well. Once the interest rates are lowered people are more likely to be able to borrow w which will be read for the economy and for large and small businesses. When money is boo rowed, it will then be spent, creating a boost in the overall economy. 3. ) Retail sales up 4 percent over last month Retail sales being up is a very positive indicator for the economy. It means that t people are spending money, which means people are making money. This is also good n sews for both small and large businesses because when sales are higher in small business, more product must be ordered from the larger businesses. 4. ) Business debt down from last year Business debt being lower can be both a good and bad indicator for the icon mom. It’s bad because it could mean that businesses are less confident and worried about t aging on more debt. It’s good in the sense that overall, businesses are making enough money to eke pep themselves out of debt. This is especially good for small businesses. Less debt can be bad of r larger businesses that are involved with debt collection, for obvious reasons. 5. ) Businesses are buying more electronic equipment Businesses buying more electronic equipment could be both a bad and a go indicator. It’s bad because it is indicating that some businesses are replacing people with electric Ionics or machines which will decrease the need for human labor. When that need is lowered it will show a decrease in the job market and ultimately raise unemployment rates. The buy Wing and selling of electronic equipment is good because with the higher demand for any type of product comes more jobs for the larger businesses, the manufacturers. It could also be good for both larger and small businesses, not just the retailers but also the tech support and repair b sinuses. How to cite Economic Indicators, Papers