The term economic indicators summarizes key figures with the help of which the development of an economy can be represented or described over a certain period of time. They provide numerical values and comparative series for forecasting, describing and analyzing an economy.
Business indicators: leading indicators, presence indicators & lagging indicators
In this lesson we introduce you to the most important economic indicators and explain their meanings and relationships to you. At the end of the lesson you will find practice questions with which you can put your newly acquired knowledge to the test.
- Synonyms: Economic indicator | Macroeconomic indicator
- English: economic indicator
Important economic indicators
Of the economic indicators ( leading indicators, presence indicators, lagging indicators ) are being emphasized here three because of their importance in policy discussions and media.
Economic growth indicator
In particular, the economic growth will be particularly often mentioned in connection with the economy.
This is a comparative value that is determined annually, quarterly and monthly on the basis of the gross domestic product. Real GDP usually comes into play here, as it assumes constant prices and is therefore adjusted for inflation and can therefore only be used for comparisons.
Inflation indicator
Also, the inflation is a high priority as an economic indicator. In most countries there is a certain tolerance range within which the inflation rate should move so that the economy can develop within the desired framework.
In Europe, the target value is 2%. If inflation rises above the target value, this can be seen as an indication that the economy is overheating, as either too much money is in circulation or the existing money is devalued. Both cases indicate an unstable economy.
Labor market indicator
According to bittranslators, the third important indicator, which is often discussed in the media and politics, is provided by the labor market, because unemployment also provides reliable information on economic development.
Here, private consumption is assumed to be the growth driver. In the case of high unemployment, the consequence is falling purchasing power, which in turn allows conclusions to be drawn about a cooling economy ( downturn phase ). Conversely, unemployment can also point to an upswing or a boom. This is determined on the basis of the hours worked or the number of employees subject to social security contributions.
Chronological classification of the short-term indicators
Business indicators can be determined both before, during and after a certain event or phase of the business cycle.
Business indicators:
- Leading indicators
- Presence indicators
- Lagging indicators
Leading indicators
Leading indicators are used to assess the future development of an economy as precisely as possible. Although these indicators are always associated with a certain amount of speculation, they at least reveal the current trend. For example, the profit expectations of companies provide a good indication of the future course of the economic curve.
Example: leading indicators
Leading indicators:
- Stock index
- Incoming orders
- Retail sales
- Money supply growth
- Business climate index
- Earnings expectations
- Stocks
Presence indicators
The most important presence indicator is undoubtedly economic growth, which is determined on the basis of real gross domestic product (GDP).
Example: presence indicators
Presence indicators:
- Gross domestic product (GDP)
- Industrial production
- Capacity utilization
- Stocks
- Vacancies
- Prices
- Savings rate
Lagging indicators
On the other hand, lagging indicators are more used to explain or describe the economic development in retrospect. The development of unemployment figures, for example, has proven to be one of the most important indicators for this.
Example: lagging indicators
Lagging indicators:
- Unemployment rate
- Gross domestic product (GDP)
- inflation rate
- Bankruptcies
- Price level development
- tax income
- Interest rate development
Price indicators & quantity indicators
Business indicators can also be divided into price and quantity indicators. While the volume development of a certain reference object is observed with the quantity indicators, the price level or the price development is the focus of the consideration with the price indicators.
Quantity indicators:
- Unemployment rate
- Incoming orders
- Industrial production
Price indicators:
- Real estate prices
- inflation rate
- Cost of living
Why are the short-term indicators important?
The economic indicators provide figures and comparative values that allow an assessment of the economic development of an economy. They enable economics to forecast, describe and analyze current economic events and thus provide the state with the necessary basis for shaping its economic policy.
In companies, economic indicators are all the more important the longer the planning cycles are. Above all, companies in the secondary (e.g. industry and manufacturing) and tertiary sector (services) make long-term planning also dependent on the economy. This is especially true with regard to the development of production and skills, since most of a long payback period is expected and the capacity possible good to remain busy.
Importance of short-term indicators
The individual economic subjects, such as companies, the media and students of economics, need reliable measurement parameters with the help of which the complex economic facts such as the economic development of an economy can be clearly illustrated.
For this reason, indicators are regularly calculated both by the Federal Statistical Office and by economic research institutes , which allow the interest groups a quick overview and a precise assessment of the situation. In order for these indicators to have a correspondingly high informative value, they must be collected in the shortest possible time periods. Quarterly or monthly surveys are the rule.
So that a long-term comparison can be made and the individual figures are more meaningful, the indicators must be available as so-called “long series”, that is, they must be collected and evaluated over several years. This is the only way to show the economic development and its phases in the form of an economic curve.
In Germany, it is primarily the Federal Statistical Office that is tasked with drawing an overall picture of the economic structure and economic development and thus delivering a continuous description of the economy.