These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.
- Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
- Economic conditions include:
- Government budget deficits or surpluses
- The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
- Balance of trade levels and trends
- The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
- Inflation levels and trends
- Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising . This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
- Economic growth and health
- Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
- Productivity of an economy
- Increasing productivity in an economy should positively influence the value of its currency. It affects are more prominent if the increase is in the traded secto
Economic Indicator 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 include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for inflation), industrial production, bankruptcies, Gross Domestic Product, broadband internet penetration, retail sales, stock market prices, and money supply changes. Economic indicators are primarily studied in a branch of macroeconomics called "business cycles". The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research.
The Bureau of Labor Statistics is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics. Other producers of economic indicators includes the United States Census Bureau and United States Bureau of Economic Analysis.
Economic indicators fall into three categories: leading, lagging and coincident.
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, after the fact, the dates of peaks and troughs in the business cycle.
Economic data are usually numerical time-series, i.e., sets of data (covering periods of time) for part or all of a single economy or the international economy. When they are time-series the data sets are usually monthly but can be quarterly and annual. The data may be adjusted in various ways (for ease of further analysis), most commonly adjusted or unadjusted for seasonal fluctuations.
Economic data may also describe functions or inter-relationships between variables [where the inter-relationships may be theoretical (e.g. a production function) rather than factual], and they may describe a static as opposed to a dynamic relationship (e.g., an input-output matrix or a foreign exchange correlation matrix[1] as opposed to, e.g.. a series showing changes of automobile output over time).
Thousands of data sets are available. At the level of an economy, these are compiled by use of national accounts. Such data include the major components of Gross National Product, Gross National Expenditure, Gross National Income, and a whole panoply of series including output, orders, trade, confidence, prices and financial series (e.g., money and interest rates). At the international level there are many series including international trade, international financial flows, direct investment flows (between countries) and exchange rates.
Within a country the data series are usually produced by one or more statistical organisations, e.g., a government or quasi-government organisation and/or the central bank. International statistics are produced by several international bodies and firms, including the International Monetary Fund and the Bank for International Settlements.
Many methods can be used to analyse the data. These include, e.g., time-series analysis using multiple regression, Box-Jenkins analysis, seasonality analysis. Analysis may be univariate (forecasting from one series) or multivariate (forecasting from several series). Economists, econometricians and financial experts build what can be very complex models that incorporate raw economic data, adjusted economic data, and relationships that they have estimated, to model economic developments. These models may be partial, aimed at examining particular parts of an economy or economies, or they may cover a whole economic system and forecast, e.g., demand, prices and employment.
Economic Data Issues
Good economic data is a precondition to effective macroeconomic management. With the complexity of modern economies and the lags inherent in macroeconomic policy instruments, a country must have the capacity to promptly identify any adverse trends in its economy and to apply the appropriate corrective measure. This cannot be done without economic data that is complete, accurate and timely.
Increasingly, the availability of good economic data is coming to be seen by international markets as an indicator of a country that is a promising destination for foreign investment. International investors are aware that good economic data is necessary for a country to effectively manage its affairs and, other things being equal, will tend to avoid countries that do not publish such data.
The public availability of reliable and up-to-date economic data also reassures international investors by allowing them to monitor economic developments and to manage their investment risk. The severity of the Mexican and Asian financial crisis was made worse by the realization by investors that the authorities had hidden a deteriorating economic situation by slow and incomplete reporting of critical economic data. Being unsure of exactly how bad the economic situation was, they tried to withdraw their assets quickly and in the process caused further damage to the economies in question. It was the realization that data issues lay behind much of the damage done by these international financial crises that led to the creation of international data quality standards, such as the IMF’s General Data Dissemination System (GDDS).
Inside a country, the public availability of good quality economic data allows firms and individuals to make their business decisions with confidence that they understand the overall macroeconomic environment. As with international investors, local business people are less likely to over-react to a piece of bad news if they understand the economic context.
