Economic Indicators

Here is a chart displaying estimates of the initial jobless claims indicator, one of the main unemployment statistics in the US. It measures the number of new applicants for unemployment benefits. What was the level of the analyst with the most optimistic outlook?

220 The most optimistic analyst is the analyst expecting the lowest increase in initial jobless claims. In this case, the lowest estimate is 220.

Her is the economic calendar for the United Kingdom for August 2013. Examine indicators like PMI (Markit UK PMI Manufacturing), employment (Jobless Claims Change), and GDP (GDP YoY). Most investors prefer to examine year-over-year (YoY) data versus month-over-month (MoM) because YoY is subject to less volatility and therefore representative of longer trends in the economy. Based on these major indicators, how did the UK economy perform overall?

Above expectations The United Kingdom surprised the world in the second half of 2013 with the robustness of its economy. - The PMI index (Markit UK PMI Manufacturing, row 21) for July registered 54.6 versus an estimate of 52.8. - Jobless claims (Jobless Claims Change, row 63) declined by 29,000 versus an estimate decline of only 15,000. -GDP (GDP YoY, row 82) for the second quarter grew 1.5% YoY versus an estimate of 1.4%

GDP per capita is a measure of prosperity because it divides the total GDP of a country by its population. Which of the below forecasts for a country would result in the highest GDP per capita growth?

An increase of 2% and a population growth of 0%. Accounting for population growth is a major factor in determining how prosperous a country can become. An increase in gross GDP is not the only factor that determines the prosperity growth of a country.

Why is the release of GDP statistics less interesting to investors than the release of other economic indicators?

Because GDP statistics are released well after other economic indicators. GDP statistics are typically release by the government a month or more after the period in question, by which point dozens of other indicators have been released.

Which economic indicator is most directly linked to the average person's cost of living?

CPI Consumer Price Index measures price increases for a standard basket of goods i.e. what the average person is most likely to consume. Nonfarm payrolls is unemployment, GDP is growth, and PMI is business confidence.

Take a look at the GDP components for the United States in the World Economic Statistics screen (ECST <GO>) below. which GDP component was the biggest contributor at the time that this screen was captured?

Consumer Spending Personal consumption expenditures (consumer spending) was the highest contributor to the US GDP at $19.5 trillion.

In the United States, why is there a strong relationship between unemployment and GDP?

Consumer spending accounts for 2/3 of the US economy. When the number of unemployed consumers rises, there is less consumer spending. The fact that the United States is largely a consumer economy leads to the tight connection between US unemployment and the US GDP. The US is a net importer, not a net exporter. Government benefit payments rise when unemployment rises. From an overall GDP perspective, however, this is more than offset by declines in consumer spending.

Examine China's predicted economic activity on the below table captured in April 2019. As of that date, which of the following terms would have best described the predicted growth in the Chinese economy for 2021?

Deceleration China's real GDP grew by 6.7% in 2018. At the time this screen was captured, it was expected to grow by only 5.0% in 2024, meaning that analysts expected China to decelerate. The other economic activity indicators show the same trend.

Which of the following important US economic indicators is only available on a quarterly basis?

GDP Nonfarm payrolls, CPI, and PMI are published monthly. GDP is only published on a quarterly basis.

In 2015, an accounting gimmick gave Ireland a 26% growth rate in GDP. What does this event reflect about the nature of GDP?

If the measurement of economic activity evolves, GDP can change. Governments from time to time change the scope of and criteria for GDP measurement, as we saw with Nigeria and Italy.

Consider the formula GDP = C+I+G+(X-M). A country is undergoing a boom in consumption of domestic and foreign luxury goods. In one year, the dollar growth in imports is greater than the dollar growth in domestic consumption. Assuming nothing else has changed, what happened to GDP?

It went down. As imports act as a drag on GDP, the larger growth in imports offsets the growth in consumption, thereby causing GDP to decline.

How have economic forecasts for this country evolved as shown in the chart below?

Minimal Change The white line represents 2014 real GDP growth forecasts. As the line is essentially horizontal, it means that the forecasts are mostly unchanged.

What typically happens to nonfarm payrolls, the PMI indicator, and housing starts at the onset of a recession in the United States?

Nonfarm payrolls go DOWN, the PMI indicator goes DOWN, the housing starts goes DOWN. At the onset of recession, people lose their jobs, businesses lose confidence, and fewer people can afford to buy houses. Accordingly, nonfarm payrolls, which measures the change in the number of people with jobs, goes down. The PMI indicator, which denotes confidence with a high reading and anxiety with a low reading, goes down. The housing starts, Which represent the number of new houses being built, also goes down.

Which of the following lines is the best leading economic indicator?

PMI The goal of leading indicator is to be alerted to forthcoming turning points in real GDP growth. In the great recession starting in late 2008, PMI fell to its low point and started to recover well in advance of GDP falling to its low point and then rebounding.

These charts show data for four countries as of early 2016. For each country, the purple line denotes historic real GDP growth. The white line denotes the consensus estimated real GDP growth. The red line denotes the most pessimistic analyst forecast. The green line denotes the most optimistic analyst forecast. for which country does the analyst community exhibit the widest disagreement about 2016 growth prospects?

Russia The chart for Russia displays the widest spread between the lowest and highest analyst estimates for 2016. The difference between the lowest (red) and the highest (green) estimate is over 3 percentage points.

Which of the following is the biggest pitfall of economic indicators?

They are not sufficiently timely to make informed investment decisions. Investors analyze the economy through the lens of economic indicators primarily to make money and avoid losses. When economic indicators fail to predict a turning point, which they frequently do, investors can miss out on opportunities and/or lose money. Some economic indicators are very timely, such as PMI. While all economic indicators are necessary proxies, timely proxies help investors glean underlying economic performance.

Which of the following qualities of economic indicators do investors prize the most?

Timeliness of release Investors value data that comes out with the least lag possible so they can make decisions on a timely basis. The more timely the data, the more valuable it si to investors and policy makers.

What is the main reason that investment banks create estimates of economic indicators?

To know when specific economic data point are a positive or negative surprise. Surprises move markets, and market movements are the lifeblood of investment banks. While a successful financial institution will benefit the GDP of its host nation, and while the creation of economic estimates does help keep governments accountable, banks primarily exist to make money.