Economic indicators are regularly released governmental
statistics that indicate the growth and health of a country
especially its economy. Economic indicators mostly influence the
value of a country's currency. These are key statistics that
show the direction of the economy. The Trade Deficit, the Gross
National Product (GNP), Industrial Production, the Unemployment
Rate, Inflation Rate, Factory Utilization Rate and the Business
Inventories are instances of economic indicators.
Economic indicators are used to analyze the economic behavior
of a country and predict the manner in which economy will act in
near future. On the basis of types of predictions economic
indicators are of three kinds:
Coincident economic indicator
Leading economic indicator
Lagging indicators
A coincident economic indicator happens in tandem with an
economic event. This indicator occurs at approximately the same
time as the conditions they signify. The paradigm instance of it
is company payrolls. These payrolls are coincident indicators
because they make payment and simultaneously increase the
localized economy. Personal income is also a coincidental
indicator for the economy. High personal income rates will
coincide with a strong economy. The coincident indicators do not
predict future events but change with a change in time and
economy of the stock market.
A lagging indicator is one that follows an event. This
indicator is an event, which happens after the corresponding
economic cause occurs just like the amber light is a lagging
indicator for the green light as amber trails green. The
unemployment rate of a country is an example of a lagging
indicator because as the economy is doing badly or companies are
expecting a downturn in the economy, the unemployment rate
increases accordingly. Media is also a lagging economic
indicator for the news is always reported few hours before the
actual economic fluctuation that they point to. A lagging
indicator is immensely significant because of its ability to
confirm that a pattern is happening or about to occur.
Leading indicators are events that take place right before an
economic shift. The leading indicators are instrumental in
forecasting future events. The leading indicators exhibit
immense accuracy in the world of finance. An example of leading
indicators is the bond yields. Bond yields are leading
indicators of the stock market because on behalf of these bond
traders anticipate and further course of the stock market and
economy of the country.
However in economics the classification of several factors is
subject to debate. For instance according to some people the
Federal Reserve is a leading indicator while for others it is a
lagging indicator. The trend of the market indicates either that
the market reacts to the Federal Reserve changing interest rates
or that the Federal Reserve changes interest rates only in
response to the market. Seeing practically the Federal Reserve
can be viewed as both a leading and lagging indicator.
Every week dozens of economic surveys are conducted and several
economic indicators are released. In order to understand the
current and future of the market and so enjoy a successful
business, it is very important for all the investors to crack
the economic indicators skillfully.