Key Economic Indicators Part 2

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10

Housing starts, completion and sales

  • Measures: Number of new houses begun and finished; sales of new and existing homes
  • Significance: Indicates construction activity; industrial and consumer demand. Housing starts imply demand for materials and labor and are closely linked to population, earnings, employment and interest rates.

Wholesale sales or turnover, orders with stocks

  • Measures: Sales by wholesalers
  • Significance: Indicates demand. A fall in wholesale sales or inventories suggests or confirms slack in business and retail demand. Not significant as retail sales.

Retail sales or turnover, orders and stock

  • Measures: Most commonly sales by retailers
  • Significance: Indicates demand. Retail sales cover up to half of total consumer spending. They are key indicator of consumer confidence and demand. Focus on volume increases and decreases.

Import of goods and services

  • Measures: Purchases from abroad
  • Significance: May displace domestic production and drain financial resources. A country imports goods and services because it cannot produce them itself or because there is an advantage in buying from abroad. Oil is often left out of the figures.

Exports of goods and services

  • Measure: Sales in other countries
  • Significance: Exports generate foreign currency and economic growth. Export growth boosts GDP which in turn implies more imports. The greater the proportion of exports in relation to GDP the bigger the boost to domestic output when overseas demand rises.

Trade balance, merchandise trade balance

  • Measures: The net balance between exports and imports goods.
  • Significance: Shows a country’s fundamental trading position. A large trade deficit may signal supply constraints, companies are unable to meet demand. The deficit may act as a safety valve and divert inflationary pressures. The balance of trade measure the relationship between national savings and investments. A deficit indicates that investment exceeds savings and that absorption of real resources exceeds output.

Export and import prices; unit values

  • Measures” Prices of traded goods
  • Significance: Identifies cost pressures, potential exchange rate problems and changes in competitiveness. Compare export prices with domestic price indicators to get a feel for the way that manufacturers are passing on cost pressures to foreign buyers. Use import prices to judge external cost pressures.

Producer and wholesale prices

  • Measure: price of goods at the factory gate
  • Significance: Leading indicator of cost pressures. Producer prices shed light on cost pressures affecting domestic production. During a recession PPI may overstate cost pressures and conversely may understate prices during inflationary periods.

Surveys of price expectations

  • Measures: Manufactures perceptions of inflationary pressures
  • Significance: Excellent anecdotal warning of potential price changes. Look for a change in the trend to suggest a potential increase or decrease in cost pressures.

Wage, earnings and labor costs

  • Measures: Labor costs and influences on consumer incomes
  • Significance: Shows both cost and demand pressures. Wages and earnings are closely linked to the economic cycle. If earnings rise faster than consumer price inflation, real spending is growing.

Unit labor costs

  • Measures: labor cost per unit of output
  • Significance: Indicator of cost pressures and competitiveness. This is a key indicator of the efficiency of labor. If unit labor costs fall, the same output can be produced for less expenditure on labor.

Consumer or retail prices

  • Measures: Price of a basket of goods and services
  • Significance: Indicates inflation as experience by a typical household. Familiar and readily available inflation indicator although timely is not necessarily accurate.

Consumer or private expenditure deflator

  • Measures: Price changes affecting a consumer’s expenditure
  • Significance: A broad indicator of consumer price inflation; less susceptible to fiddling than consumer price indices. The deflator reflects actual spending rather than prices basket approach. Can be useful check on the signals of other inflation indices.

GDP deflators

  • Measures: Overall national price changes
  • Significance: broadest indicator of inflation, deflators measure the difference between current and constant price GDP and its components. If GDP increases by 2% in real terms and 5% in nominal terms, the implied economy wide rate of inflation is 3%. Deflators are valuable for identifying trends and obtaining advance warning of price changes.