Decoding Economy:
The development of understanding of interaction and association between economic systems is called decoding economy. From analyzing economic data to making policies, it assists in gaining insights of the economic systems. Different economic models are being used in decoding the economy which helps in understanding economic relationships. The overall health and direction of economy is indicated by economic indicators. Economic indicators play a major role in decoding the economy, understanding the trends, and decision making. It helps analysts in analyzing different aspects of economy and understanding present and future investment policies. These indicators can be leading, lagging or coincident. Economic indicators can be checked online many websites release reports on economic indicators such as the Bureau of Labor Statistic and Census Bureau.
Here’s a look on some common economic indicators and their importance:
Gross Domestic Product (GDP):
The foremost essential economic indicator in economy is Gross domestic product (GDP). It indicates the total gross value of all the goods and services that are generated within a country in a specified period. It involves all the investments, government expenditures, goods consumption and net exports of a country. A nation’s overall health of economy and economic performance is demonstrated by GDP. It demonstrates how the economy of a country has increased or decreased over a period of time. The spike or decline in a country’s GDP indicates its economic outlook. If GDP levels are growing of a country it means there will be increased income, more investments, increased employment and improved standard of living. Same as, decreased GDP will have negative impacts like decreased employment, poverty and lower incomes. A developed understanding of GDP is crucial for investors, economists and business leaders as it helps in gaining insights of a nation’s economic progress and health of economy. Economic indicators played a major role in understanding the impact of crisis in Global Financial Crisis of 2008. GDP is considered as the most influential measure that affects the financial market.
Industrial Production:
As the name indicates, industrial production refers to the total yield of the industrial sector of a country. It involves the sectors like manufacturing, mining, gas and electricity departments which generate good for both business purpose and consumers. Industrial productions depend upon four factors: labor, land, capital and entrepreneurship. These are major building blocks for an industrial production. If industrial production is increasing it indicates a higher consumer demand and increase business investments which proves crucial for economic health. Likewise, a decrease in industrial production proves economic downturn. Industrial production also relates with employment levels. More the industrial production, more employment opportunities are provided.
Inflation:
Inflation is also an essential economic indicator. It refers the increase in the rates of products over a specified time. The spike in products prices increases the cost of living in a country. Higher inflation affects the economy of a country; it indicates an economic instability, slow economic growth and destabilizes the economy. When inflation arises, it decreases consumers spending power. At low level, inflation keeps the economic conditions healthy as it supports investment and spending. The main cause of inflation is an imbalance in supply and demand of goods. If the supply and demand difference is stabilized, economy will grow stronger eventually.
Unemployment:
Unemployment is an economic indicator which refers to the lower rate of jobs in a country. It means labor group is willing to do job but the job vacancies are less, people are not contributing to economic growth. High rate of unemployment indicates a decrease in economic growth and performance. On the other hand low unemployment indicates a positive effect on economy and embarks a healthy economic status. The unemployment rate of USA according to July 2023 is 3.5% which demonstrates how healthy economy of USA is.
Consumer Price Index (CPI):
Consumer Price Index measures the change in rates of goods and products that are consumed by general population. It shows the spending methods by both spenders and consumers. By assessing CPI economists can adjust the policies. A significant rise in CPI indicates the higher prices which automatically imply that there is low spending. Increased CPI impairs the economic growth. Consumer spending represents two-thirds of the US gross domestic product and is a good indicator of consumer health. According to the bureau of Labor Statistics the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in January on a seasonally adjusted basis, after rising 0.2 percent in December.
Home Developments:
Home developments refer to the new houses construction projects that start during a specific period. It indicates the contribution of real estate in the economic growth. It includes the number of homes that builders start building and number of permits that are required for building the houses. This assesses the growth of the housing market. Larger number of projects embarks a healthy and strong economy while lower number of projects indicates decreased economic performance.
Retail Sales:
Retail sales refer to measure of all the sales by U.S retail stores. A report is monthly generated by Commerce stores which demonstrate how much the consumers have spent by purchasing goods. When retail sales are high it means consumers are spending a lot and industries will produce more goods which ultimately have positive effect on economy health. Conversely, when sales are lower it indicates potential economic vulnerability.
Trade Balance:
As the name indicates, trade balance is the measure of difference between a country’s trades over a period of time. It is the average balance which a country is making in between its exports and imports. An increased trade balance is indicated when a country is making more exports than imports. So it will lead to economic growth. Conversely, low trade balance will affect economic growth.
Interest Rates:
In case of economic instability and controlling inflation interest rates are used by Banks. Economists and central banks consider it as an important component for influencing economy. Increased interest rates help in inflation controlling but have negative impact on economy. On the other hand low interest rates make it easy for people to borrow money from banks which strengthens the economy.