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Understanding Indicators

Understanding Indicators

Author: Kate Eskra

Determine how economic indicators can be utilized to study the economy.

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Source: Images of Business Cycle created by Kate Eskra

Video Transcription

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Hi. Welcome to macroeconomics. This is Kate. This tutorial is called Understanding Indicators. As always, my key terms are in red and examples are in green.

In this tutorial, we'll talk about how economists use data to study the economy. And I'll define and give examples for you of different economic indicators, including leading, lagging, and coincident. So this is a business cycle. You're probably used to seeing it by now.

These business cycles show us that it's normal for the economy to go through periods of growth and contraction. Most people are concerned about things at any given time, like the unemployment rate and inflation. Economists though use a lot of different kinds of data.

Those certainly are two indicators that we'll talk about. But they use a lot of different kinds of data to help them do three different things. First of all, to help them predict where the economy is headed, to help explain what has just occurred in the economy, and to look at what is currently happening right now in the economy. So those are the three different kinds of indicators.

So economists study economic indicators to give them an overall view of the economy. It's like a snapshot of the economy at any given point in time. And that's why they're studied in macroeconomics because that's what macroeconomics is all about, the overall economy and how healthy it is. There are three different categories. They are leading, lagging, and coincident.

So let's start with leading indicators. Leading indicators are these trends, patterns, and situations that assist in forecasting the economy. They're looking at where the economy is headed.

And some examples of leading indicators are unemployment insurance claims, building permits, and stock or equity market performance. All three of these things tend to indicate where the economy might be headed. So that's why they're leading indicators.

Lagging indicators, though, are trends, patterns, or situations that provide a clear indication of where the economy has been. They are after the fact, basically. So examples of lagging indicators are our unemployment rate and the consumer price index.

Also, consumer credit. All of these things kind of show us a little bit after the fact where our economy might have been. So they tend to lag what's going on in the economy.

Finally, a coincident index are indicators that provide a view of the current state of the economy. So one good example of a coincident indicator is consumer confidence. And we'll talk about that. And it's the subject of a different tutorial. But we'll talk about how consumers feel about the economy tends to be a statistic that shows us how they feel about what's going on right now currently. So that's why it's coincident.

So why do we have so many indicators and so many different kinds? There are many different ones which help us to assess the state of the economy. And it's a helpful to have multiple indicators because our economy is really very complex.

And there is no one indicator that we can say, OK, absolutely. If we just use unemployment, or if we just use the consumer price index, or just consumer confidence, none of them alone on their own are perfect at completely explaining what's going on. So that's why it's helpful to have so many.

So in this tutorial, we've briefly just looked at how economists use data to study the overall economy. And I walked you through the three different categories of indicators-- leading, lagging, and coincident. Thank you so much for listening. Have a great day.

Terms to Know
Coincident Index

Indicators that provide a view of the current state of economy.

Lagging Indicators

Trends, patterns, or situations that provide a clear indication of where the economy has been.

Leading Indicators

Trends, patterns, or situations that assist in forecasting the economy.