What is the purpose of economic indicators?
Answer:
There are three basic types of indicators: leading coinident, and lagging (aka trailing) indicators. Leading indicators are used as predictors. If we find that (for example) when corporate earings rise by more than 7% a year, stock prices also rise, then next time we see an 8% increase in corporate earnings is probably a good time to buy stock. Coincident and lagging indicators are used to measure the status of the economy. For example, they can tell us what stage in an economic cycle we are in (or, in the case of lagging indicators, what stage we were in).
Main purpose of economic indicators are: to attract foreign investment, it also provides info which sector is healthy and which sector is performing poorly. A nation with positive economic indicators also can acquire loans at a very low interest rate. Sales of treasury bonds will fetch more buyers if economic indicators are green and go.
The economy is a confluence of an innumerable variety of actions and decisions made by its participants. Because it is not possible to know with precision each of these elements, economists use observable (measurable) economic variables as "proxies". This means they represent with a degree of accuracy a set of underlying unobservable economic variables.
Economic indicators are those proxies that are used to judge a past, present or future state of the economy. As implied above the corresponding indicators are known as lagging, coincident and leading indicators respectively.
So, the purpose of an economic indicator is to provide an observable measure of the state of the economy when the underlying variables (that really do affect the economy) are unobservable. Generally, it takes more than one indicator to make proper inferences about the economic state.
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