Economists spend much of their time predicting the next turn of the business cycle, determining where along the cycle the economy is today and confirming for historical purposes what stage the economy was in on a given date. To perform these tasks, they rely on leading, coincident and lagging business cycle indicators, respectively.
- The measure most closely associated with a nation's overall economic output, or economic activity, is gross domestic production(GDP), the total market value of all goods and services produced within the country's borders during a specific period, typically a quarter or a year. The GDP is one of the most important economic indicators.
- Another is the unemployment rate, which measures the number of people actively seeking work as a proportion of the civilian population over age 16 that is either a) actively seeking work or b) already employed.
- One other key indicator is the consumer price index (CPI), which compares the cost of a broad "market basket" of consumer products in a recent period with the cost of the same items in a previous period. CPI is the key measure of inflation, a continued rise in prices of goods and services which has the effect of reducing the purchasing power of a nation's currency.
Each of these indicators has its flaws. GDP does not account for production by a nation\'s resources located abroad. The unemployment rate does not register people who give up the job hunt in frustration. CPI cannot compare the costs of consumer products - digital audio players, cable modems, anti-cholesterol medication - that did not exist until recently. Economists do have finer tools, but GDP, unemployment and CPI are the three basics you need to know for the Series 7 exam.
Economic Indicators (Part 2 of 2)
InvestingThese indicators give investors and experts some data to work with, but they're far from perfect measures.
InsightsMacroeconomic factors like GDP, Inflation, and Retail Sales affect the value of your portfolio. Understanding these economic indicators is vital for every investor in the marketplace.
TradingFind out what reports to watch in order to anticipate and react to market movements.
InsightsInvestors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
InsightsEconomic growth happens when the market value of the goods and services in an economy increase in one time period as compared to a prior time period.
InvestingUnderstanding these investing tools will put the market in your hands.
InvestingThe business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, ...