Leading Economic Indicator (Business Forecasting)

1. Average workweek of production workers in

manufacturing When workers get less overtime,
output may be declining.
2. Average initial weekly claims for state unemployment insurance When first-time claims for
unemployment insurance benefits rise, employment may
be falling.
3. New orders for consumer goods and materials
When manufacturers receive smaller orders, they
may cut back on output.
4. Vendor performance (companies receiving slower
deliveries from suppliers) Better on-time delivery by suppliers means they have a smaller backlog
of orders.
5. New orders for capital goods If these orders drop,
then businesses are planning less output.
6. New building permits issued This provides a
good indication of how much construction activity
there will be three or four months from now.
7. Index of stock prices Declining stock prices may
reflect declining prospects for corporate sales and
profits.
8. Money supply If the Federal Reserve slows the
growth of the money supply, interest rates will rise,
and it will be harder for businesses and individuals to
borrow money.
9. Spread between rates on 10-year Treasury bonds
and Federal funds Long-term interest rates are
usually much higher than short-term interest rates.
Federal reserve policies designed to slow the
economy raise short-term interest rates with little
effect on long-term rates. So a smaller spread
between short-term and long-term interest rates
implies a restrictive monetary policy and a decline
in output.
10. Index of consumer expectations As consumers
grow less confident about the future, they plan to
make fewer major purchases.

Unemployment rate= Number of unemployed/Labor force
Types of Unemployement
frictionally unemployed are people who are between jobs or just entering or reentering the labor
market. Because our system of fi lling jobsnewspaper classified ads, employment agencies, corporate
recruiters, executive headhunters, help-wanted signs, Internet postings, and word of mouthis
imperfect, usually weeks or months pass before positions are filled.
structurally unemployed.A person who is out of work for a relatively long period of time, say, a couple of
years
Cyclical =If we allow for a certain amount of frictional and structural unemployment, anything
above the sum of these two would be cyclical unemployment
Seasonal Unemployment

Inflation - Demand-Pull Inflation When there is excessive demand for goods and services, we
have demand-pull infl ation. What is excessive? When people are willing and able to buy
more output than our economy can produce. Somethings gotta give. And what gives are
prices.
Excessive demand causes demand-pull inflation.
Demand-pull inflation is often summed up as too many dollars chasing too few
goods..
This usually happens during wars. The government spends a lot of money on uniforms,
tanks, planes, rifl es, bullets, bombs, and missile systems. Private citizens want more consumer goods
and services.
Cost-Push Inflation There are three variants of cost-push infl ation.
wage-price spiral. Because wages constitute nearly two-thirds of the cost of doing
business, whenever workers receive a signifi cant wage increase, this increase is passed
along to consumers in the form of higher prices. Higher prices raise everyones cost of
living, engendering further wage increases.
second is profit-push infl ation. Because just a handful of huge fi rms dominate many industries
the power to administer prices in those industries rather than accept the dictates of the market forces
of supply and demand.
Finally supply-side cost shocks, most prominently the oil price shocks

GDP gap The amount of production by which potential GDP
exceeds actual GDP.