Key Economic Indicators Explained

There are a Key Economic Indicators Explained indicators that help paint a picture of how a country’s economy is performing. Each of these can provide insight into a particular area of the economy such as consumer spending, employment rates, or the price of goods and services. However, no single indicator provides a complete picture.

That is why economists like to use a combination of leading and lagging indicators to determine how the economy as a whole is performing. Leading indicators provide early information about changes that are coming and can help us predict the direction of the economy. They tend to be countercyclical, such as the unemployment rate, which rises during a recession and falls when the economy is growing again.

From Interest Rates to Inflation: How Monetary Policy Shapes Economic Landscapes

Lagging indicators, such as GDP and inflation, report data after a change has already happened. They are useful, however, for helping policymakers determine what steps to take to respond to a changing economy. For example, a declining level of inflation or deflation is a sign that consumers are spending less. This can prompt central banks to lower interest rates, encouraging people to spend more and stimulate the economy.

Other lagging indicators include commodity prices and manufacturing activity. The price of raw materials and finished goods can serve as an excellent early warning of future inflation. Manufacturing activity can be a good leading indicator of the health of the overall economy and its impact on consumers as well. For example, when new housing construction starts to fall, it is usually a sign that the market has peaked and that the number of houses built is unlikely to increase soon.