MACROECONOMIC INDICATORS

Macroeconomic Indicators



Macroeconomic Indicators

Leading indicators such as investment plans, orders for machine tools, and new house-building starts can be combined to construct a measure of “business confidence,” which in turn can help predict cyclical changes in gross national product. Similarly, “consumer confidence” is linked to variables such as future spending, output, and incomes, through economic mechanisms such as the multiplier principle.

A “lagging” indicator is a variable or a series of statistical data that can be expected to reflect earlier changes in some related areas of the economy, and which usually follow the changes by a fairly consistent time period. A lagging indicator can therefore be used to make an analysis of previous trends in the economy, or a diagnosis of previous problems with a view to avoiding similar problems next time around. The inflation rate, for example, is calculated using recent historic data concerning price movements within a statistically constructed “basket” of typical goods and services. If an analysis of the inflation rate shows that its causes are demand led, then an appropriate policy response (such as an adjustment of the interest rate) can be prescribed as a solution.

If, on the other hand, the diagnosis is that inflation is imported due to higher world commodity process (a cost factor rather than a demand actor), then the interest rate approach might be inappropriate or even damaging to the wider economy. Since government policy makers are not noted for their infallibility, knowledge of lagging indicators is as important as leading indicators as a piece of managerial intelligence, because this knowledge can help business people to be prepared in advance for changes in the wider business environment, some of which will come from government policy adjustments, whether appropriate or inappropriate.

It is quite possible for a particular indicator to be interpreted as being both leading and lagging simultaneously. A country's unemployment rate, for example, tells us something about the performance of the economy in recent history, and shows the end result of many contributing factors including the efficiency of the business sector, the state of the labor market, and the efficacy or otherwise of government policies concerning both the “hard” economy of variables such as interest rates and taxation, and the “soft” economy of education, training, and investment in human capital. However, the unemployment rate can also be used to make forecasts of likely future trends in directly affected variables such as saving and consumer spending, together with more indirect knock-on effects on other variables such as investment, output, and national income.

The state of the manufacturing and house-building sectors can have quite different significance in Germany, say, compared with the United Kingdom (UK) and United States, depending on factors such as the structure of their business sectors, and the role played by different types of industry in contributing to national output and employment.. (Ahdieh 2004 56).

The GDP of the South America was amply EUR 12 500 000 million in 2008, with the nations of the euro locality accounting for a little under three ...