Subject 5. Economic Indicators PDF Download
Economic indicators are statistics on macroeconomic variables that help in understanding which stage of the business cycle an economy is in. Economic indicators can be leading, lagging, or coincident, which indicates the timing of their changes relative to how the economy as a whole changes.
No single indicator is able to forecast accurately the future direction of the economy. In the U.S., economists often refer to the Conference Board's diffusion index when judging the moves in the leading index. The diffusion index can measure the breadth of a move in any BCI index, showing how many of an index's components are moving together with the overall index. The index generally turns down prior to a recession and turn up before the beginning of a business expansion.
However, there are two problems with the index.
- There has been significant variability in the lead time of the index. For example, a downturn in the index is not always an accurate indicator of the future.
- The index has often given false alarms. For example, a recession forecasted by a decline in the index does not materialize.
While we cannot predict the future perfectly, economic indicators help us understand where we are and where we are going.
User Contributed Comments 2
|GilCassar||the explanation of a diffusion index could be clearer here..|
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
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