Guide to Economic Indicators
Page 2
Sub-Saharan Africa
African countries without a Mediterranean coastline.
Organisation of Petroleum Exporting Countries (OPEC – 12)
Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
Newly industrialised Asian economies (4)
Hong Kong, Singapore, South Korea and Taiwan.
Visegrad four
Czech Republic, Hungary, Poland and Slovakia.
Commonwealth of Independent States (CIS – 11)
Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.
The indicators
This book groups the major economic indicators together in chapters to highlight linkages and aid interpretation. These groups, which are not mutually exclusive, cover the economy and economic growth, population and employment, government fiscal policies, consumers, investment and savings, industry and commerce, external flows, exchange rates, money and interest rates, and prices and wages.
1.1 Industrial countries’ GDP
The briefs
Each chapter begins with a short introduction followed by a series of briefs covering the key indicators. Each brief begins with a few lines summarising the indicator, its significance, what to look for, the source, and so on. These summaries, which are necessarily general, focus on what might be expected from a major industrialised country, such as the United States, Britain, Germany or Japan, when the economy is in relatively good shape.
Time periods
To aid interpretation, most of the tables show average rates of growth or another appropriate average over various time periods. These cover a 30-year period and provide useful yardsticks for judging future trends.
Germany
Unification took place in October1990 but it was only in 1993 that a wide range of consolidated figures was produced.
Sources of information
Countless economic figures are published every day in the news media and in various special reports, such as those circulated by investment advisers and financial institutions. The information is necessarily selective, so that readers may wish to go back to the original source of the statistics.
National sources
Apart from the various trade organisations such as the US Institute for Supply Management or the Confederation of British Industry (CBI), each country has its own sources of official statistics.
Sometimes the appropriate government department is self-evident; for example, labour statistics generally come from the department of employment or labour. For data which affect more than one department, such as GDP or balance of payments figures, good sources include the central bank or a central statistical agency, such as Germany’s Federal Statistics Office or France’s National Institute of Statistics and Economic Studies (INSEE). In America the Commerce Department is the most comprehensive source of data.
Key statistical publications produced by official bodies in the countries focused on are listed below. In general central bank sources contain monetary data and the other sources covermore general figures, but there is usually some overlap between the two. These official sources frequently include a summary of the major private-sector figures.
International sources
International organisations publish various national and international data, frequently in standardised or semi-standardised form, within a few weeks of their original release. Key sources include the following. Website details are given in the Appendix on page 240.
OECD. The monthly Main Economic Indicators includes output, prices and trade in the OECD’s 31 member and a dozen non-member countries. The numbers are often rebased (for example, to 2005 = 100), but are derived from the original national data. Periodic Economic Surveys and special reports provide data and analysis relating to economic developments in one member country or to one group of indicators such as employment data.
IMF. The monthly International Financial Statistics covers monetary data and many other figures such as GDP and trade for the 183 IMF member countries.
UN (United Nations). The Monthly Bulletin of Statistics includes some production and trade figures for a wide range of countries in more detail than IMF figures. Data on the production of various commodities are interesting.
European Commission. The monthly Eurostatistics contains comparative data for EU member countries, while the quarterly European Economy includes statistics and ad hoc reports.
Useful national statistical publications
Australia
Reserve Bank: Report and Financial Statements; Statistical Bulletin
Australian Bureau of Statistics: Monthly Review of Business Statistics;
Digest of Current Economic Statistics
Austria
National Bank: Annual Report; Mitteilungen
Statistical Office: Statistische Nachrichten
Belgium
National Bank: Annual Report; Statistical Bulletin
National Institute of Statistics: Bulletin of Statistics
Canada
Bank of Canada: Review
Statistics Canada: Canadian Economic Observer
Denmark
National Bank: Reports and Accounts; Monetary Review
Statistics Denmark: Statistical Bulletin
France
Bank of France: Statistiques Monétaires Definitives; Statistiques
Monétaires Provisoires; Quarterly Bulletin
National Institute of Statistics and Economic Research (INSEE): Monthly Statistics Bulletin; Informations Rapides
Ministry of Economics, Finance and Budget: Les Notes Bleues; Statistics and Financial Studies
Germany
Bundesbank: Monthly Report; Supplements to the Monthly Reports
Federal Statistical Office: Aussenhandel, Reihe 1, Wirtschaft und Statistik
Italy
Bank of Italy: Annual Report; Economic Bulletin;
Statistical Bulletin Central Institute of Statistics: Monthly Bulletin
Japan
Bank of Japan: Economics Statistics Monthly
Bureau of Statistics: Monthly Statistics of Japan
Netherlands
Netherlands Bank: Annual Report; Quarterly Bulletin
Central Bureau of Statistics: Statistical Bulletin; Monthly Financial Statistics (Financiele Maandstatistiek); Social-economisch Maandstatistiek; Maandschrift (Monthly Bulletin)
Spain
Bank of Spain: Annual Report; Statistical Bulletin
National Statistical Institute: Monthly Bulletin of Statistics; National Accounts of Spain
Sweden
Bank of Sweden: Yearbook; Quarterly Review
National Institute of Economic Research: The Swedish Economy
Central Bureau of Statistics: Monthly Digest of Swedish Statistics; Statistical Reports
Switzerland
Swiss National Bank: Annual Report; The Swiss Banking System;
Monthly Bulletin
Message of the Federal Council to the Federal Assembly
United Kingdom
Bank of England: Monetary and Financial Statistics
Office for National Statistics: Monthly Digest of Statistics; Economic
Trends; Financial Statistics
United States
Board of Governors of the Federal Reserve System: Federal Reserve Bulletin
US Department of Commerce: Survey of Current Business
US Treasury Department: Treasury Bulletin
Interpretation
These are the first questions to ask when you come across any economic indicators.
Who produced the figures? Was it a reliable government agency such as Statistics Canada or a recently established market research company?
Will the data be revised? If so by how much? For example, America’s GDP growth in the first quarter of 2006 was revised upwards from 4.8% to 5.3%.
To what period do the figures relate
? For example, American retail sales of $320 billion would be excellent for a month, appalling for a year.
Are the data seasonally adjusted? If so is the adjustment reliable? For example, an increase in sales of umbrellas in the wettest month on record will not necessarily indicate a lasting improvement in the fortunes of umbrella companies.
What were the start and end points for changes? For example, the change in unemployment between a recession and a boom will look much more impressive than the change between boom and slump.
What about inflation? For example, a 2% increase in spending is rather disappointing if prices rose by 5% over the same period.
What other yardsticks will aid interpretation? For example, total population, employment or GDP. A 5% rise in the number of jobs is not such good news if the working-age population expanded by 10% over the same period.
Chapter 2 runs through some critical ideas about numbers and their interpretation. Chapter 3 describes how economic activity is measured and comments on yardsticks and reliability. Chapters 4–13 cover the indicators themselves, as previewed above.
Chapter 2
Essential mechanics
Please find me a one-armed economist so we will not always hear “On the other hand ...”
Herbert Hoover, US president
This chapter looks at some basic methods of interpreting numbers and some of the common associated problems. It also lays the groundwork for analysing any kind of economic data.
Volume, value and price
When interpreting economic figures it is important to distinguish between the effects of inflation and changes in the real level of economic activity. Indicators measure one of three things:
volume, such as tonnes of steel or barrels of oil;
value, such as the market value of steel or oil produced in one month or year; or
price, such as the market price of 1 tonne of steel or 1 barrel of oil.
The relationship between these three is simple. Volume times price equals value (see Table 2.1).
Table 2.1 OPEC crude oil production and prices
There is one possible complication. If the volume of oil or steel produced each year is valued in the prices ruling in, say, 2005, the result is an indicator of output in “2005 price terms”. Such a series is in money units, but it is a volume indicator because it provides information about changes in volumes not prices. This is known also as output in constant prices, real prices or real terms.
The value of oil output measured in actual selling prices is known as a current price or nominal price series or a series in nominal terms. Thus:
values, current prices, nominal prices and nominal terms include the effects of inflation; while
volumes, constant prices, real prices and real terms exclude any inflationary influences.
In Table 2.2 column A shows the money value of annual US economic output (gross domestic product or GDP, see page 28), which reflects changes in both output and prices. The next two columns disentangle these factors. Column B shows the volume of output with all goods and services measured in 2005 prices. Column C indicates the path of inflation (but see the comment on chained-weighted index numbers below).
Table 2.2 US GDP
The value of output rose in 2004–05 (from $11,868 billion to $12,638 billion), yet in terms of the prices ruling in 2005, real output moved much less over the same period (from $12,264 billion to $12,638 billion).
Price indicators used to convert between current and constant prices (to deflate) are sometimes called price deflators.
Current price series divided by constant price series (× 100) equals the price deflator.
Current price series divided by price deflator (× 100) equals the constant price series.
Constant price series times the price deflator (÷ 100) equals current price series.
Any series of numbers can be converted into index numbers, as described below for the constant price series in Table 2.2 column E.
Step 1 A reference base is selected, 2005 in this case.
Step 2 The value in the reference base is divided by 100 (12,638÷100 = 126.38).
Step 3 All numbers in the original series are divided by the result of step 2.
For example, the index value for 2007 is 14,077.6 ÷ 126.38 = 111.4
Index numbers
Index numbers are values expressed as a percentage of a single base figure. For example, if annual production of a particular chemical rose by 35%, output in the second year was 135% of that in the first year. In index terms, output in the two years was 100 and 135 respectively.
Index numbers have no units. Chemical production in the second year is referred to as 135, not 135 tonnes or 135%. The advantages are that distracting units are avoided and changes are easier to assess by eye. The arithmetic is straightforward, as shown in Table 2.2.
Composite indices and weighting
Frequently two or more indices are combined to form one composite index. For example, indices of consumer spending on food and on all other items might be combined into one index of total spending.
Base weighting
The most straightforward way of combining indices is to calculate a weighted average using the same weights throughout. This is known as a base-weighted index, or sometimes a Laspeyres index after the German economist who developed the first one. The following is an example of a base-weighted price index for single-person household consumption of wine and cheese each week.
Base Data
Where prices are in, say, dollars and quantities are litres of wine/kilos of cheese:
Current weighting
The problem with weighted averages is that weights usually need revising from time to time. With the consumer prices index, spending habits change because of variations in relative cost, quality, availability, and so on. One way to proceed is to calculate a new set of current weights at regular intervals, and use these to derive a single long-term index. This is known as a current-weighted index, or occasionally a Paasche index, again after its founder. The following is an example of a current-weighted price index for single-person household consumption of wine and cheese each week.
Base data
Where prices are in, say, dollars and quantities are litres of wine/kilos of cheese:
Neither base weighting nor current weighting is perfect. Base-weighted indices are simple to calculate but they tend to overstate changes over time. Current-weighted indices are more complex to produce and they understate long-term changes.
Current-weighted price indices reflect changes in both prices and relative volumes, while base-weighted versions record price changes only. The price deflator in Table 2.2 is actually chain-weighted, ie the weights are adjusted each year and the indices are linked.
Mathematically, there is no ideal method for weighting indices; expediency usually rules. Most commonly indices are a combination of base-weighted and current-weighted. A new set of weights might be introduced every five years or so and the new index then spliced or chained to the old index. Table 2.3 shows how two indices are joined.
It is essential to know the basis for the weighting, as illustrated above.
Table 2.3 Chaining index numbers
Chaining index numbers
Step 1 Identify one period when there are figures for both indices; 2006 in Table 2.3.
Step 2 For this period, divide the new figure by old figure; 83 ÷ 133 = 0.62.
Step 3 Multiply all old figures by the result; each figure in column C = figure in column A × 0.62.
Step 4 Put the rebased data with the new figures to create one long run of data.
Effects of reweighting/out-of-date weights
To show the effects of reweighting, consider GDP (total output) based on 2000 weights when, say, manufacturing accounted for half of all economic activity. If in 2000 manufacturing grew by 6% while all other activity was static, initial 2000 figures showed total GDP rising by 6 × 0.50 = 3%. By 2005 the results of a major survey were available and
GDP from 1998 was reweighted to take account of the fact that the manufacturing sector had shrunk to a mere 10% of total GDP. As a result the revised figure for total growth in 2000 was 6 × 0.10 = 0.6%.
This is obviously an extreme example, but index numbers can easily become distorted if one item is much less or much more significant than the others. For example, demand tends to grow most rapidly for goods and services which increase least in price, and so on rebasing these items are allocated larger relative weights. In order to be able to track economic changes more accurately, most countries and organisations calculate real GDP growth using chain-weighted methods.
When looking at index numbers it is a good idea to check when they were last rebased and ask whether any component is increasing or decreasing in relative importance. The same approach should be taken to constant price series, such as the GDP data in 2005dollars in Table 2.2, because these are essentially index numbers with a base value other than 100.
Convergence
Look out also for illusory convergence on the base. Two or more series will always meet at the base period because that is where they both equal 100 (see Chart 2.1, using data from Table 2.2). This can be highly misleading. When you encounter indices on a graph, the first thing to do is check where the base is located.
2.1 Index numbers: illusory convergence
Source: US Commerce Department, Bureau of Economic Analysis
Measuring changes
If an index of stockmarket prices rose from 1,200 to 1,260, you could say either that it rose by 60 points or, alternatively, that it increased by 5%.
Stating the increase as 60 points (an absolute measure) is simple and straightforward. Yet to interpret the figure it must be judged against another figure, such as the starting level. A rise of 60 points in an index standing at 120 is much more dramatic than an increase of 60 points in an index which started at 12,000.