Indicators
In the business world, economic indicators are measures associated with BUSINESS CYCLES. Business indicators are statistical measures used by individual firms or industry groups to measure and predict changes in business activity. There are three categories of indicators: leading, coincident, and lagging. Leading indicators change in advance of changes in real output—i.e., GROSS DOMESTIC PRODUCT (GDP). Coincident indicators change as real output changes following which lagging indicators will change. The Department of Commerce index of leading indicators includes
• average workweek
• UNEMPLOYMENT claims
• manufacturers’ new orders
• stock prices
• new plant and equipment orders
These statistical measures tend to move in advance of changes in the economy. Declining workweek hours, manufacturers’ new orders, stock prices, and new plant and equipment orders tend to precede a decline in GDP. Unemployment claims tend to rise in advance of declining real output. Coincident indicators include
• payroll EMPLOYMENT
• industrial production
• personal INCOME
• manufacturing and trade sales
• new building permits
• delivery times of goods
• interest-rate spread
• MONEY SUPPLY
• consumer expectations
Logically these indicators change at the same time as changes in real output. Some coincident indicators, such as payroll, personal income, and consumer expectations, affect primarily consumer spending; while other indicators, such as industrial PRODUCTION, trade sales, and delivery time of goods affect primarily business spending. Lagging economic indicators include
• labor cost per unit of output
• inventories-to-sales ratio
• unemployment duration
• ratio of consumer credit to personal income
• outstanding commercial LOANS
• prime interest rate
• inflation rate for SERVICES
These indicators typically do not change until after real GDP has changed. Economists use lagging and leading indicators to distinguish the peaks and troughs in business cycles. Major U.S. CORPORATIONs usually have a team of economists to analyze economic indicators and use these indicators to develop forecasts for future DEMAND for a company’s products based on changes in real GDP. Many firms and industries develop customized sets of indicators for forecasting. For example, convenience-store operators know gasoline prices affect the demand for other PRODUCTs in their stores. Because the ELASTICITY OF DEMAND for gasoline is inelastic, or relatively unresponsive, consumers continue to purchase almost as much gasoline at a higher price as compared to when the price was lower. Higher prices reduce consumers’ discretionary spending on candy, drinks, and other impulse purchases. Similarly, universities know changes in high-school graduation rates and federal loan and grant programs, as well as changes in the economy, affect demand for their services. One owner of a traditional men’s clothing store noticed that demand for his products shifted depending on which business groups were doing well. At times he had many real-estate developers, other times business executives, lawyers, and doctors. He adjusted his MARKETING STRATEGY based on indicators predicting which segment of the market would continue to prosper.
Indicators
In the business world, economic indicators are measures associated with BUSINESS CYCLES. Business indicators are statistical measures used by individual firms or industry groups to measure and predict changes in business activity. There are three categories of indicators: leading, coincident, and lagging. Leading indicators change in advance of changes in real output—i.e., GROSS DOMESTIC PRODUCT (GDP). Coincident indicators change as real output changes following which lagging indicators will change. The Department of Commerce index of leading indicators includes
• average workweek
• UNEMPLOYMENT claims
• manufacturers’ new orders
• stock prices
• new plant and equipment orders
These statistical measures tend to move in advance of changes in the economy. Declining workweek hours, manufacturers’ new orders, stock prices, and new plant and equipment orders tend to precede a decline in GDP. Unemployment claims tend to rise in advance of declining real output. Coincident indicators include
• payroll EMPLOYMENT
• industrial production
• personal INCOME
• manufacturing and trade sales
• new building permits
• delivery times of goods
• interest-rate spread
• MONEY SUPPLY
• consumer expectations
Logically these indicators change at the same time as changes in real output. Some coincident indicators, such as payroll, personal income, and consumer expectations, affect primarily consumer spending; while other indicators, such as industrial PRODUCTION, trade sales, and delivery time of goods affect primarily business spending. Lagging economic indicators include
• labor cost per unit of output
• inventories-to-sales ratio
• unemployment duration
• ratio of consumer credit to personal income
• outstanding commercial LOANS
• prime interest rate
• inflation rate for SERVICES
These indicators typically do not change until after real GDP has changed. Economists use lagging and leading indicators to distinguish the peaks and troughs in business cycles. Major U.S. CORPORATIONs usually have a team of economists to analyze economic indicators and use these indicators to develop forecasts for future DEMAND for a company’s products based on changes in real GDP. Many firms and industries develop customized sets of indicators for forecasting. For example, convenience-store operators know gasoline prices affect the demand for other PRODUCTs in their stores. Because the ELASTICITY OF DEMAND for gasoline is inelastic, or relatively unresponsive, consumers continue to purchase almost as much gasoline at a higher price as compared to when the price was lower. Higher prices reduce consumers’ discretionary spending on candy, drinks, and other impulse purchases. Similarly, universities know changes in high-school graduation rates and federal loan and grant programs, as well as changes in the economy, affect demand for their services. One owner of a traditional men’s clothing store noticed that demand for his products shifted depending on which business groups were doing well. At times he had many real-estate developers, other times business executives, lawyers, and doctors. He adjusted his MARKETING STRATEGY based on indicators predicting which segment of the market would continue to prosper.