Macroeconomic Indicators

An economic indicator is a statistic that indicates the current status of the economy, and how the economy will likely perform in the future. Investors and other private or government organizations use this information as a tool to make business decisions. By gathering historical data about the economy and comparing it to current trends, you can compile a snapshot of economic fluctuations. The direction of an indicator may vary according to changes in the economy. The indicator can be leading, lagging, or coincident. Leading indicators are changes before the economy has recognized the change. Lagging indicators do not change until a few quarters after the economy has change. Coincident indicators move at the same time as the economy. GDP is a known coincident indicator (Economic About, 2006). Some of the common indicators are Real GDP, Retail Sales, Unemployment Rate, Inflation Rate, Housing Starts, and Savings rate. As the explanation of these six indicators will be use to forecast the future of the economy, the trend of these indicators will also be used to evaluate the economy's historical and future outcome.

Real GDP

Real Gross Domestic Product (GDP) is used and described as "the Federal Reserve's primary goal is sustained growth of the economy with full employment and stable prices. Real GDP is the most comprehensive measure of the performance of the U.S. economy". (Federal Reserve Bank, 2006). The Federal Reserve Bank continues to say "By monitoring trends in the overall growth rate as well as the unemployment rate and the rate of inflation, policy makers are able to assess whether the current stance of monetary policy is consistent with that primary goal."

The GDP measures products and services purchased or sold. According to the National Council of Economic Education (NCEE, 2006) confirms "changes are more meaningful, as the changes in real GDP show what has actually happened to the quantities of goods and services, independent of changes in prices."

Year Real GDP

(billions of 2000 dollars) Population

(in thousands) Real GDP

per Capita

(2000 dollars)

2003 $10320.6 290789 $35492

2004 $10755.7 293655 $36627

2005 $11134.8 296748 $37523

"Among its peer group, the United States ranks first in economic growth with an average annualized seasonally adjusted real GDP growth rate of 2.7 percent from the first quarter of 2001 through the third quarter of 2005" (Saxton, 2005).

Trends in real GDP, as reported by National Council on Economic Education (2006) stated "the first three quarters of 2001, the rate of growth of real gross domestic product was actually negative as the U.S. economy entered a recession in March of 2001 lasting through November of 2001. The changes in real GDP were actually negative for the first time since 1993".

Retail Sales

The retail industry varies at any given time and the fluctuation of the economy has a direct impact on the sales force. "Retail is the second largest industry in the U.S. by number of businesses and number of employees" (Plunkett Research, Ltd. 2005). There are several factors, primarily affecting the growth of retail sales, such as interest rates, inflation and/or population. According to Plunkett Research, Ltd there are several positive and negative attributes that influence the retail market.

Those include:

Positive forces at work in the retail market today include:

* Relatively low interest rates

* Easy availability of consumer credit

* A very strong job market coupled with relatively low unemployment rates

* Moderate inflation

* A relatively low personal savings rate (indicating a willingness to spend rather than save)

* Higher stock market and personal investment values

Negative factors include:

* Consumers have high debt levels

* Global terrorism, tension and uncertainty

* Consumers burdened with much higher energy costs including gasoline, home heating fuel, natural gas rates and electricity rates

* A slowdown in housing market

The ever increasing popularity of internet sales and on-line shopping has increased the amount of money being poured into the economy. "Superstores are battling each other on every major corner while direct marketers (including catalogs and online sites) are stealing customers from stores. For example, discount airlines Jet Blue and Southwest each sell over 50% of their tickets via their web sites" (Plunkett Research, Ltd. 2005)

A factor indirectly associated with retail sales is the housing industry "While homes themselves are not counted in retail sales figures, buyers of these homes have been a positive force at retail stores, where they purchased significant quantities of furniture, appliances, linens, consumer electronics and garden supplies to fill up their new residences" (Plunkett Research, Ltd. 2005).

The indication that retail sales signals a positive direction of the U.S national economy "retail trade sales were up 0.7 percent (±0.7%) from February and were 7.9 percent (±0.8%) above last year. Building material and garden equipment and supplies dealers were up 17.9 percent (±2.0%) from March 2005 and sales of non-store retailers were up 14.1 percent (±4.0%) from last year" (U.S Census Bureau. 2006).

Unemployment Rate

Unemployment is one of the economic indicators that are used to foresee if the economy is in a recession, or if the economy is headed towards a recession. The business cycle is the upward or downward movement of economic activity. The unemployment rate is defined as "the percentages of people in the economy who are willing and able to work but who are not working." (Colander, 2004) Unemployment is affected by the economic conditions. If the economy is in a recession, unemployment rises. If the economy is in an expansion, the unemployment rates falls. There are two types of unemployment to consider. Cyclical unemployment that