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8/7/2019 econonic indi

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BUSINESS

PERSPECTIVES

PRESENTATION ON

ECONOMIC INDICATOR


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ECONOMIC INDICATORS

An economic indicator (or business indicator)is a statistic about the economy.

Economic indicators allow analysis of

economic performance and predictions of

future performance.

Economic indicators are primarily studied in a

branch of macroeconomics called "business

cycles


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VARIOUS INDICES

EARNINGS REPORTS

ECONOMIC SUMMARIES

UNEMPLOYMENT, HOUSING STARTS

CONSUMER PRICE INDEX (A MEASURE FOR INFLATION)

INDUSTRIAL PRODUCTION

BANKRUPTCIES

GROSS DOMESTIC PRODUCT

BROADBAND INTERNET PENETRATION

RETAIL SALES

STOCK MARKET

ECONOMIC INDICATORS INCLUDES

FOLLOWING :


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ECONOMIC INDICATORS FALL

INTO THREE CATEGORIES:

LEADING

LAGGING

COINCIDENT


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COINCIDENT INDICATOR

Coincident indicators are those which change at

approximately the same time and in the same

direction as the whole economy, thereby providing

information about the current state of the economy.

Personal income ,GDP, industrial production and

retail sales are coincident indicators.

A coincident index may be used to identify, afterthe fact, the dates of peaks and troughs in the

business cycle.


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A lagging indicator is an economic

indicator that reacts slowly to economic

changes, and therefore has little predictive

value.

Generally these types of indicators follow

an event, they are historical in nature.

For example, in a performance measuring

system, profit earned by a business is a

lagging indicator as it reflects a historical

performance

LAGGING INDICATOR


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Lagging indicators demonstrate how wellan economy has performed in the past few

months, giving economists a chance to

review their predictions and make better

forecasts.

The Index of Lagging Indicators is

published monthly by The Conference

Board, a non-governmental organization,which determines the value of the index

from seven economic variables.

CONTINUES.


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The components ofLAGGING INDICATOR are:

1.The Average Duration Of Unemployment (Inverted)

2. The Value Of Outstanding Commercial And

Industrial Loans

3. The Change In The Consumer Price Index For

Services

4. The Change In Labor Cost Per Unit Of Output

5. The Ratio Of Manufacturing And Trade Inventories

To Sales

6. The Ratio Of Consumer Credit Outstanding To

Personal Income

7. The Avera e Prime Rate Char ed B Banks


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Economists' Use The Index Of Lagging

Indicators To Validate Assessments Of

Current Economic Conditions.

These Components Tend To Follow

Changes In The Overall Economy.

ABOUT THE 7 COMPONENTS


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A leading indicator is a statistic that predicts

trends in the economy or a particular industry.

For example, the number of building permits

issued is a leading indicator for the housing

sector, because permits must be obtained before

building begins.

A move in a leading indicator for one time period

is often not meaningful; but a string of increases

or decreases, especially in conjunction withconfirming data, points to a recovery or downturn.

Because stock market prices are determined by

the likelihood of future events, a leading indicator

is a key tool for market analysts.

LEADING INDICATOR


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A Leading Indicator Sometimes Gives FalseSignals -- It May Not Indicate A Change In Anything.

The Lag Time Between The Signal Given By A

Leading Indicator And The Actual Change In The

Economy Or Industry Is Often Uncertain.

A Leading Indicator Is Only Truly Useful To An

Analyst When Its Signal Is At Least Somewhat

Ambiguous.

Once A Leading Indicator Provides Certain

Evidence Of A Trend, Stock Prices Will Already

Reflect That Information.

LIMITATIONS IN LEADING INDICATOR :


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GROSS DOMESTIC PRODUCT (GDP) ORGROSSDOMESTIC INCOME (GDI) is a basic measure of a country's

economic performance and is the market value of all final goodsand services made within the borders of a country in a year

The most common approach to measuring and quantifying GDP isthe expenditure method:

GDP = private consumption+ grossinvestment+ government spending + (exports

import), or,GDP = C + I +G + (X M).


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y It is a fundamental measurement of production andis very often positively correlated with the standard ofliving

y

Though its use as a stand-in for measuring progressin increasing the standard of living has come underincreasing criticism

y Many countries are actively exploring alternative

measures


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GDP can be defined in three ways, all of which areconceptually identical.

It is equal to the total expenditures for all final goodsand services produced within the country in a stipulated

period of time (usually a 365-day year). It is equal to the sum of the value added at every stage

of production (the intermediate stages) by all theindustries within a country, plus taxes less subsidies onproducts, in the period.

It is equal to the sum of the income generated byproduction in the country in the periodthat is,compensation of employees, taxes on production andimports less subsidies, and gross operating surplus (orprofits)


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C (consumption) is privateconsumption in the economy. This includes most personal

expenditures of households such as food, rent, medical

expenses and so on but does not include new housing.

I (investment) is defined as investments by businessor households in capital. Examples of investment by a business

include construction of a new mine, purchase of software, orpurchase of machinery and equipment for a factory. Spending by

households (not government) on new houses is also included in

Investment.


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G (government spending) is the sum of

government expenditures on final goods and services. Itincludes salaries of public servants, purchase of weapons for the

military, and any investment expenditure by a government. It does

not include any transfer payments, such as social security or

unemployment benefits.

X (exports) represents gross exports. GDPcaptures the amount a country produces, including

goods and services produced for other nations'

consumption, therefore exports are added.

M (imports) represents gross imports. Imports aresubtracted since imported goods will be included in the

terms G, I, orC, and must be deducted to avoid counting

foreign supply as domestic.


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Types of GDP & GDP growth

Current GDP is GDP expressed in the current prices of theperiod being measured

Nominal GDP is the production of goods and services valuedat current prices.

Real GDP is the production of goods and services valued at aconstant price level (i.e.: not affected by changes in the value of

money)

Calculating the real GDP growth allows economists to determine ifproduction increased or decreased, regardless of changes in the purchasing

power of the currency.


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Three approaches to measuring GDP(macroeconomics)

1. Expenditures approach:The total spending on all final goods and services (Consumption

goods and services (C) + Gross Investments (I) + Government

Purchases (G) + (Exports (X) - Imports (M))

GDP = C + I + G + (X-M)

2. Income approach (NI = National Income)

Using the income approach, GDP is calculated by adding up the

factor incomes to the factors of production in the society. These

include:

Employee compensation + Corporate profits + Proprietor's

Income + Rental income + Net Interest

3. Value added approach:

The value of sales of goods - purchase of intermediate goods toroduce the oods sold.

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