Source: Image of Business Cycle created by Kate Eskra
Hi. Welcome to Economics. This is Kate. This tutorial is an Overview of Data Sources. As always, my key terms are in red and my examples are in green.
In this tutorial we will be talking about how economists use data to study the economy. I'll define and then give you some examples of different economic indicators. The three categories are, leading indicators, lagging indicators and then coincident indexes.
This is a business cycle. And this shows that it's very normal for the economy to go through periods of growth and contraction. We measure growth in the economy by looking at our GDP, our gross domestic product. As it's increasing over time we're going through a period of expansion. Then we hit a peak. And then we enter a brief period of contraction. If it lasts a long time, typically we call it a recession. Then we hit a trough, and then the cycle starts over again. Most people, as we go through these periods of expansion and contraction, are concerned about things like the unemployment rate and inflation.
The economists are going to use many different kinds of data to help them do a few things. The first thing that they'll use data to do is to predict where the economy is headed. So where are we going from here? Economists also use data to explain what has just occurred. So taking a look back at where have we been. Then finally, economists can actually use data to explain what is happening right now.
Economists use economic indicators to do this. And these are going to give an overall view of the economy at any given point in time. And as I said, there's three different categories, leading, lagging and coincidents.
Before we get into them we just wanted to make a comment here about whether this is micro or macro relevant. Macroeconomics will use economic indicators a lot. Because Macroeconomics looks at the economy overall as a whole. So it'll look at the overall unemployment rate or the overall inflation rate in the economy.
Microeconomics, though, is concerned more with individuals, the individual consumer, the individual firm. Some of these indicators are going to be studied in Microeconomics because they can help to explain what's happening in individual markets or in certain industries. And they can also help to explain how a certain individual might be impacted by changes going on.
Leading indicators are the first group. And these are trends, patterns or situations that assist in forecasting the economy. They help show us where we might be headed from here.
One example of a leading indicator that economists use a lot are unemployment insurance claims. So when people find themselves unemployed they go and they can file to collect unemployment. As the number of these rise it tends to show us that our economy is probably headed for a contraction. As they fall we might be headed towards a period of growth.
Building permits. When people are building new construction they have to apply for a permit. And so as the number of these grow that might indicate that the economy's headed for growth. As they fall it might indicate the opposite.
Finally, the stock market does tend to predict where the economy is going. It tends to rise before the economy grows and it tends to taper off a little bit before the economy shrinks.
Now we have lagging indicators. These are opposite. These are trends, patterns or situations that provide a clear indication to us of where the economy already has been. So these take a look back at where we have been. They tend to happen after the fact. Some lagging indicators are the unemployment rate, the consumer price index, which shows overall prices in the entire economy, and then consumer credit. Those are a few examples of indicators that actually happen after what has happened in the economy.
Finally, we have coincident indicators. A coincident index are indicators that provide a view of the current state of the economy. So this is going to help explain, right now, what's going on. And the one example of a coincident indicator is consumer confidence.
Consumer confidence has a lot to do with our economy. And we'll be talking about in a different tutorial how this consumer confidence is measured. But when consumers are confident about the economy it's generally because it's doing well. When consumers are fearful of the economy it's generally because the economy's not doing so well. So that's a coincident indicator that is studied by a lot of economists.
In this tutorial we talked about how economists use data to study the economy overall and how they could use it, perhaps, in individual markets. And there are three different categories of economic indicators each of which will be its own separate tutorial. Those are leading indicators. lagging indicators and coincident indicators.
Thanks so much for listening. Have a great day.
Trends, patterns or situations that assist in forecasting the economy.
Trends, patterns or situations that provide a clear indication of where the economy has been.
Indicators that provide a view of the current state of economy.