BUSINESS

PERSPECTIVES

PRESENTATION ON

ECONOMIC INDICATOR
 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”
ECONOMIC INDICATORS INCLUDES
FOLLOWING :
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 FALL INTO
THREE CATEGORIES:

 LEADING

LAGGING

COINCIDENT
 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, after

the fact, the dates of peaks and troughs in the
business cycle.
LAGGING INDICATOR
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
 CONTINUES…….

Lagging indicators demonstrate how well

an 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.
The components of LAGGING 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
 ABOUT THE 7 COMPONENTS

Economists' Use The Index Of Lagging

Indicators To Validate Assessments Of
Current Economic Conditions.

These Components Tend To Follow

Changes In The Overall Economy.
 LEADING INDICATOR
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 with
confirming 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.
 LIMITATIONS IN LEADING INDICATOR :
A Leading Indicator Sometimes Gives False
Signals -- 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.
 GROSS DOMESTIC PRODUCT (GDP) OR GROSS
DOMESTIC INCOME (GDI) is a basic measure of a country's
economic performance and is the market value of all final goods and
services made within the borders of a country in a year
The most common approach to measuring and quantifying GDP is the
expenditure method:

GDP = private consumption+ gross investment+

government spending + (exports− import) , or,
GDP = C + I + G + (X − M).
It is a fundamental measurement of production and
is very often positively correlated with the standard
of living
 Though its use as a stand-in for measuring progress
in increasing the standard of living has come under
increasing criticism
Many countries are actively exploring alternative
measures
 GDP can be defined in three ways, all of which are conceptually
identical.
 It is equal to the total expenditures for all final goods and
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 the industries
within a country, plus taxes less subsidies on products, in the
period.
 It is equal to the sum of the income generated by production in
the country in the period—that is, compensation of employees,
taxes on production and imports less subsidies, and gross
operating surplus (or profits)
C (consumption) is private
consumption 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 business

or households in capital. Examples of investment by a business
include construction of a new mine, purchase of software, or
purchase of machinery and equipment for a factory. Spending by
households (not government) on new houses is also included in
Investment.
G (government spending) is the sum of
government expenditures on final goods and services. It
includes 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. GDP

captures the amount a country produces, including
goods and services produced for other nations'
consumption, therefore exports are added.

M (imports) represents gross imports. Imports are

subtracted since imported goods will be included in the
terms G, I, or C, and must be deducted to avoid
counting foreign supply as domestic.
Types of GDP & GDP growth
Current GDP is GDP expressed in the current prices of the
period being measured

Nominal GDP is the production of goods and services valued

at current prices.

Real GDP is the production of goods and services valued at a

constant price level (i.e.: not affected by changes in the value of
money)

Calculating the real GDP growth allows economists to determine if

production increased or decreased, regardless of changes in the purchasing
power of the currency.
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 to
produce the goods sold.