Economic Indicator

Just as you have indicators on your car dashboard, or your video game, the economy has indicators too. Economic indicators are macroeconomic factors economists measure regularly, which can help tell us more when we put them all together in various ways to analyze the economy.

In the same way that knowing how much gas is in the tank or how much health you have left doesn’t give you the whole picture, neither does just knowing what GDP (gross domestic product) currently is. Other popular economic indicators include the unemployment rate, interest rates, the consumer price index (CPI), retail sales, and stock prices.

The thing about economic indicators is that they aren’t as reliable as the ones in your car and video games (hopefully). Sometimes, when some economic indicators are at certain levels, we expect something to happen—and it doesn’t.

For instance, when stagflation occurs, the economy has slowed (GDP has gone down) and both inflation and unemployment are high. Stagflation means that prices are going up even though spending is going down. You’d think we’d see prices go down if nobody’s buying, right? That means our economic indicators are doing things we didn’t think they’d do in tandem, which makes things confusing. For what it’s worth, stagflation doesn’t happen too often, but it has happened.

Since the Fed often decides its policy based on how to balance inflation and unemployment, stagflation makes the economists at the Fed go “uh….hmmmm.” Usually, they try to make inflation go down, which makes it harder on the unemployed, or they give the unemployed a break, which makes inflation go up. Inflation shouldn’t be happening when the economy is down in the dumps. So while economic indicators are helpful most of the time, sometimes...they’re not.