Economic Indicators

To begin with, an economic indicator is only useful if one interprets it correctly. History has shown strong
correlations between economic growth (as measured by GDP) and corporate profit growth. However,
determining whether a specific company will grow its earnings based on one indicator is nearly
impossible. Indicators give us signs along the road, but the best investors will utilize many economic
indicators, looking for patterns and verifications within different sets of data.
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Definition of 'Economic Indicator'
So the economic indicator itself, is a piece of economic data, usually of macroeconomic scale, that is used
by investors to interpret current or future investment possibilities and judge the overall health of an
economy. Economic indicators can potentially be anything the investor chooses, but specific pieces of
data released by government and non-profit organizations have become widely followed - these include:
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- Gross Domestic Product (GDP)
- Consumer Price Index (CPI)
- Employment Cost Index(ECI)
- Unemployment figures
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The forst and the most common one is GDP(The raw GDP figure is called the nominal, historical,
or current, GDP)
The GDP is the broadest measure of a country's economy, and it represents the total market value of all
goods and services produced in a country during a given year.
Real GDP is the one indicator that says the most about the health of the economy and the advance
release will almost always move markets. It is by far the most followed, discussed and digested indicator
out there - useful for economists, analysts, investors and policy makers. The general consensus is that 2.53.5% per year growth in real GDP is the range of best overall benefit; enough to provide for corporate
profit and jobs growth yet moderate enough to not incite undue inflationary concerns. If the economy is
just coming out of recession, it is OK for the GDP figure to jump into the 6-8% range briefly, but investors
will look for the long-term rate to stay near the 3% level.
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The Bureau of Economic Analysis issues its own analysis document with each GDP release, which is a
great investor tool for analyzing figures and trends, and reading highlights of the very lengthy full release
The biggest downside of this data is its lack of timeliness; investors only get one update per quarter and
revisions can be large enough to significantly change the percentage change in GDP.
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Here you can see the allover picture of the worlds GDP. The darkest countries have the highest GDP, and
the lighter ones- lower GDP. (daug:USA, Aliaska, Kinija) (mazai:Niger, Chad, Mauritania)
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This table represents the forecasts, covering a seven-year period from 2011 to 2018, that were calculated
by the International Monetary Fund per its World Economic Outlook (WEO), September 2011, and its
WEO Update, January 2012.
I took countries with the biggest predictable GDP. You can see United States and China in leading
positions. Also, Lithuania is in 87 place, whereas Latvia is in 102 place, and Estonia is in 107 place.
According to the statistics of 2013 United states GDP reached 16,803,000 M. $, and China reached
8,229,381 M. $, so predictions were higher than reality. (Lithuania- 45.953)
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The second economic indicator is Consumer Price Index (CPI)
The CPI is a measure of the average change over time in the prices paid by urban consumers for a market
basket of consumer goods and services.
The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices
are collected periodically. The annual percentage change in a CPI is used as a measure of inflation.

A CPI can also be used to index the real value of wages, salaries and pensions, for regulating prices and
for deflating monetary magnitudes to show changes in real values. In most countries, the CPI is one of the
most closely watched national economic statistics.
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The basic CPI is a version, which does not include 8 commodities and services that has the most volatile
prices. These segments composes about 16% of CPI basket and are fruit, vegetable, fuel, boiler oil, natural
gas, credit interests, intercity transport and tobacco products. This index does not reflect the changes of
taxes put on remaining components.
CPI is the most common measure of inflation and shows the effectiveness of the states fiscal policy. It is
used by business people, leaders of labor unions and other citizens when making economic decisions.
What is more, CPI helps to correct other annual economic data seeking for a better comparison.
Moreover, countries count CPI differently: USA counts it every month, European Central Bank presents
Monetary Union Index of Consumer Prices( an average of all Eurozone countries price indexes) every
quarter. In Lithuania, the data about CPI is monthly given by the department of Statistics.
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Consumer Price Index in Lithuania increased to 108.70 Index Points in March of 2014 from 108.30 Index
Points in February of 2014.In Lithuania it is reported by the department of Statistics.CPI in Lithuania
averaged 71.02 Index Points from 1990 until 2014, reaching an all-time high of 109.00 Index Points in May
of 2013 and a record low of 0.20 Index Points in January of 1991.

To compare with, Consumer Price Index in the United States increased to 235.64 Index Points in March of
2014 from 235.17 Index Points in February of 2014. CPI in the United States is reported by the U.S. Bureau
of Labor Statistics. It averaged 102.29 Index Points from 1950 until 2014, reaching an all time high of
235.64 Index Points in March of 2014 and a record low of 23.51 Index Points in January of 1950.
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Producer Price Index

A Producer Price Index (PPI) measures the average changes in prices received by domestic producers for
their output. It measures price change from the perspective of the seller.

The PPI looks at three areas of production: industry-based, commodity-based, and stage-of-processingbased companies:
Industrial production: it shows the output of the industrial sector of the economy. The industrial sector
includes manufacturing, mining and utilities. These are highly sensitive to the interest rates and consumer
demand. This makes the Industrial production an important tool for forecasting future GDP and economic
performance. Industrial production figures are also used by central banks to measure inflation.
Commodity production is the production of wares for sale. It is a type of production in which products
are produced not for direct consumption by the producers, but are surplus to their own requirements and
are produced instead specifically with the intention of sale in the market, usually to obtain income.
Stage of processing production: The combined answer to three questions is used to determine the
appropriate SOP description:
1. What degree of fabrication characterizes the product? Is it a crude, intermediate, or finished good?
2. What is the product food, fuel, capital equipment, etc.?
3. In what manner will this product be used by the consuming industry or user?

The same product generally will fall into different SOP categories, depending on its use. For example,
fresh fruit purchased by households is considered a Finished Consumer Food, while the same fruit
purchased by a food company for canning is considered a Crude Food.
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Here are two lines of the change of Producer Prices in Lithuania and United States. According to the latest
statistics, producer prices in LT increased to 113.7 index points in March 2014, whereas in USA it is
110.3.Increasing or decreasing value of the indicator shows rising or falling prices of goods and services.In
Lithuania, producer prices reached all time high of 122,10 in september of 2012 and was the lowest with
only 55,70 in february 1999.
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Unemployment Rate
The national unemployment rate is defined as the percentage of unemployed workers in the total labor
force. It is widely recognized as a key indicator of labor market performance. When workers are
unemployed, their families lose wages, while the nation as a whole loses its contribution to the economy

in terms of the goods or services that could have been produced. Unemployed workers also lose their
purchasing power, which can lead to unemployment for other workers, creating a cascading effect that
ripples through the economy. To better understand the nature of unemployment, policymakers need
information on many aspects of it, including the number of unemployed people, the period of time for
which they have been unemployed, their skill levels, the trend in unemployment and so on.
Eurostat defines unemployed as those persons age 15 to 74 who are not working, have looked for work in
the last four weeks, and ready to start work within two weeks. What is noticeable, high and persistent
unemployment, in which economic inequality increases, has a negative effect on subsequent long-run
economic growth. Unemployment can harm growth not only because it is a waste of resources, but also
because it drives people to poverty, constrains liquidity limiting labor mobility, and erodes self-esteem
promoting social dislocation, unrest and conflict.
Here is a chart about unemployment rate in Lithuania. According to the latest data, the unemployment
rate in Lithuania now reaches about 11.4 percent. Taking USA in comparison, the unemployment rate
there now reaches 6.3 percent. The highest UR in LT reached 18.30 in the second quarter of 2010.
The fact that nowadays amuses is that the Unemployment Rate in America dropped to 6.3% this April.
Lets watch a short movie about this situation.
So as we can see, its not only a good thing that unemployment rate falls down. As there was mentioned,
the reason of that is because 800 000 people were dropped out of the workforce. As we are focusing on
economic terms, that can affect the countrys economy not in a good way. Since its a new data we will
see in the future the consequences on the economy if this change.
To conclude, the four indicators: Gross Domestic Product, Consumer Price index, Producer Price index and
Unemployment rate are the factors that we can trust the most when describing a countries economic.
For a little discussion, I prepared some questions for the audience.
1. Which do you think is the most important economic indicator and why?
(GDP, Because this is the final sum of market value of all goods and services, produced through some
period, usually a year. This means it represents the whole growth in economics, because it contains
domestic economic consumption, states expenditure, unsold goods, buildings and the balance of foreign
trade. GDP contains all other macroeconomic indicators.)
2. If you were a beginner businessman, what indicators would you follow most?
(GDP, to see the whole image of the state of economic ath that time, then Unemployment rate, to check
will there be any labourers for my business)
3. Do you remember what is the Unemployment Rate in Lithuania at the moment? 11,4