econonic indi
TRANSCRIPT
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BUSINESS
PERSPECTIVES
PRESENTATION ON
ECONOMIC INDICATOR
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ECONOMIC INDICATORS
An economic indicator (or business indicator)is a statistic about the economy.
Economic indicators allow analysis of
economic performance and predictions of
future performance.
Economic indicators are primarily studied in a
branch of macroeconomics called "business
cycles
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VARIOUS INDICES
EARNINGS REPORTS
ECONOMIC SUMMARIES
UNEMPLOYMENT, HOUSING STARTS
CONSUMER PRICE INDEX (A MEASURE FOR INFLATION)
INDUSTRIAL PRODUCTION
BANKRUPTCIES
GROSS DOMESTIC PRODUCT
BROADBAND INTERNET PENETRATION
RETAIL SALES
STOCK MARKET
ECONOMIC INDICATORS INCLUDES
FOLLOWING :
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ECONOMIC INDICATORS FALL
INTO THREE CATEGORIES:
LEADING
LAGGING
COINCIDENT
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COINCIDENT INDICATOR
Coincident indicators are those which change at
approximately the same time and in the same
direction as the whole economy, thereby providing
information about the current state of the economy.
Personal income ,GDP, industrial production and
retail sales are coincident indicators.
A coincident index may be used to identify, afterthe fact, the dates of peaks and troughs in the
business cycle.
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A lagging indicator is an economic
indicator that reacts slowly to economic
changes, and therefore has little predictive
value.
Generally these types of indicators follow
an event, they are historical in nature.
For example, in a performance measuring
system, profit earned by a business is a
lagging indicator as it reflects a historical
performance
LAGGING INDICATOR
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Lagging indicators demonstrate how wellan economy has performed in the past few
months, giving economists a chance to
review their predictions and make better
forecasts.
The Index of Lagging Indicators is
published monthly by The Conference
Board, a non-governmental organization,which determines the value of the index
from seven economic variables.
CONTINUES.
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The components ofLAGGING INDICATOR are:
1.The Average Duration Of Unemployment (Inverted)
2. The Value Of Outstanding Commercial And
Industrial Loans
3. The Change In The Consumer Price Index For
Services
4. The Change In Labor Cost Per Unit Of Output
5. The Ratio Of Manufacturing And Trade Inventories
To Sales
6. The Ratio Of Consumer Credit Outstanding To
Personal Income
7. The Avera e Prime Rate Char ed B Banks
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Economists' Use The Index Of Lagging
Indicators To Validate Assessments Of
Current Economic Conditions.
These Components Tend To Follow
Changes In The Overall Economy.
ABOUT THE 7 COMPONENTS
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A leading indicator is a statistic that predicts
trends in the economy or a particular industry.
For example, the number of building permits
issued is a leading indicator for the housing
sector, because permits must be obtained before
building begins.
A move in a leading indicator for one time period
is often not meaningful; but a string of increases
or decreases, especially in conjunction withconfirming data, points to a recovery or downturn.
Because stock market prices are determined by
the likelihood of future events, a leading indicator
is a key tool for market analysts.
LEADING INDICATOR
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A Leading Indicator Sometimes Gives FalseSignals -- It May Not Indicate A Change In Anything.
The Lag Time Between The Signal Given By A
Leading Indicator And The Actual Change In The
Economy Or Industry Is Often Uncertain.
A Leading Indicator Is Only Truly Useful To An
Analyst When Its Signal Is At Least Somewhat
Ambiguous.
Once A Leading Indicator Provides Certain
Evidence Of A Trend, Stock Prices Will Already
Reflect That Information.
LIMITATIONS IN LEADING INDICATOR :
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GROSS DOMESTIC PRODUCT (GDP) ORGROSSDOMESTIC INCOME (GDI) is a basic measure of a country's
economic performance and is the market value of all final goodsand services made within the borders of a country in a year
The most common approach to measuring and quantifying GDP isthe expenditure method:
GDP = private consumption+ grossinvestment+ government spending + (exports
import), or,GDP = C + I +G + (X M).
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y It is a fundamental measurement of production andis very often positively correlated with the standard ofliving
y
Though its use as a stand-in for measuring progressin increasing the standard of living has come underincreasing criticism
y Many countries are actively exploring alternative
measures
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GDP can be defined in three ways, all of which areconceptually identical.
It is equal to the total expenditures for all final goodsand services produced within the country in a stipulated
period of time (usually a 365-day year). It is equal to the sum of the value added at every stage
of production (the intermediate stages) by all theindustries within a country, plus taxes less subsidies onproducts, in the period.
It is equal to the sum of the income generated byproduction in the country in the periodthat is,compensation of employees, taxes on production andimports less subsidies, and gross operating surplus (orprofits)
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C (consumption) is privateconsumption in the economy. This includes most personal
expenditures of households such as food, rent, medical
expenses and so on but does not include new housing.
I (investment) is defined as investments by businessor households in capital. Examples of investment by a business
include construction of a new mine, purchase of software, orpurchase of machinery and equipment for a factory. Spending by
households (not government) on new houses is also included in
Investment.
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G (government spending) is the sum of
government expenditures on final goods and services. Itincludes salaries of public servants, purchase of weapons for the
military, and any investment expenditure by a government. It does
not include any transfer payments, such as social security or
unemployment benefits.
X (exports) represents gross exports. GDPcaptures the amount a country produces, including
goods and services produced for other nations'
consumption, therefore exports are added.
M (imports) represents gross imports. Imports aresubtracted since imported goods will be included in the
terms G, I, orC, and must be deducted to avoid counting
foreign supply as domestic.
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Types of GDP & GDP growth
Current GDP is GDP expressed in the current prices of theperiod being measured
Nominal GDP is the production of goods and services valuedat current prices.
Real GDP is the production of goods and services valued at aconstant price level (i.e.: not affected by changes in the value of
money)
Calculating the real GDP growth allows economists to determine ifproduction increased or decreased, regardless of changes in the purchasing
power of the currency.
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Three approaches to measuring GDP(macroeconomics)
1. Expenditures approach:The total spending on all final goods and services (Consumption
goods and services (C) + Gross Investments (I) + Government
Purchases (G) + (Exports (X) - Imports (M))
GDP = C + I + G + (X-M)
2. Income approach (NI = National Income)
Using the income approach, GDP is calculated by adding up the
factor incomes to the factors of production in the society. These
include:
Employee compensation + Corporate profits + Proprietor's
Income + Rental income + Net Interest
3. Value added approach:
The value of sales of goods - purchase of intermediate goods toroduce the oods sold.