Making sense of economic indicators: a consumer's guide to indicators of real economic activity
Last Updated: 09/07/92
This article develops and implements a set of procedures for evaluating indicators of economic activity that closely match the actual use of such indicators by policymakers and businessmen alike. We see that process as primarily involving the reassessment of short to medium term economic activity based on an indicator by indicator analysis, with the primary decision matrix being whether to revise the assessment of activity up or down. We do not address related issues of assessing long run growth, inflation, interest rates, or the value of the dollar. Evaluating indicators in this context has four primary parts: ranking candidate indicators; characterizing the nature of the information in those indicators; assessing their usefulness in practice; and determining what relative weight should be given to each indicator. The idea is to develop the information that an analyst needs in order to interpret information as it comes in and to choose which indicators to watch depending on the questions being asked.