What Are the Leading Economic Indicators?

Leading Economic Indicators

What are the Leading Economic Indicators? They are the most closely watched pieces of news in the economic world. These indicators give a notice of changes before the actual changes take place in the economy. They are important for inventors to get heads up before the actual change and they are also important tools for Federal Reserve to watch in order to decide interest rates. Among many of the indicators following indicators are considered the leading indicators.

The most important indicator amongst other indicators is GDP report. The most crucial thing to look at in this report is the growth rate of GDP. The annual average growth rate of GDP is around 3%. When any change occurs within this range of rate, it affects the economy. When the rate hits above the average growth rate it is considered to be unstable therefore foreshadowing the possibility of high inflation. When this occurs, Fed tries to slow down the economy. When the growth is below the rate economy is considered to be slowing down that can be responsible fore increase in unemployment and less consumer consumption. The GDP report is revised twice before the final report is presented. In this report the GDP is presented in two number forms. Current dollar GDP uses today’s dollars and compares between time periods. On the other hand, constant dollar GDP uses based year to calculate the growth rate.

The second indicator that is mostly used to measure the inflation is called CPI (Consumer Price Index). It measures the change in the cost of a bag of goods and services. This process is done by taking a sample of prices of same goods at different locations. Along with the overall CPI measurement, the core rate of CPI is measured. The core rate leaves out volatile goods that give closer measurement of real inflation. CPI measurement is also important for making adjustment to Social Security payments.

Along with CPI, another measurement, PPI (Producer Price Index), measures inflation. It measures the price of goods at the wholesale level. In other words it measures what producers receive for their goods. In PPI, there are three types of goods: raw materials, intermediate goods and final goods. Among these three types of goods, final goods are mostly watched because they actually represent what consumers pay for the goods.

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