4 Key Macro-Economic Indicators – GDP, BOP, Unemployment And CPI

4 Key Macro-Economic Indicators – GDP, BOP, Unemployment And CPI

Macroeconomic indicators are basically statistics reflecting the measure and health of economic activity in a country. The analysts, investors, economists and other concerned stakeholders such as individuals, households, small businesses, institutions, corporations, or governments calculate or directly study these parameters as a guide to arrive at informed and appropriate, relevant decisions that influence the value of assets and liabilities contained in their portfolio.

We often come across macroeconomics data released by the Australian Bureau of Statistics. The country’s national account figures suggest that the real GDP grew 2.9% to $ 1,814.5 billion in 2017-18. As per the balance of payments accounts, the net foreign debt at the end of the quarter ended September 2018, stood at $ 1,044.03 billion, up 1.2% on the prior period. The consumer price index (2011-12 = 100.0) rose 0.5 per cent in the December quarter 2018.  Thus, it is essential to understand and take into account these terms.

As per the general classification, unemployment, consumer price index (CPI) and Balance of Payments (BOP) are all lagging indicators, that confirm the occurrence of a pattern in the past. They do not essentially point to where the economy is headed but simply indicate how the economy changes over time and may be used to speculate long-term trends.

Gross Domestic Product (GDP), on the other hand, is one of the coincident indicators, that occur parallelly to the conditions that they signify. Basically, they change at the same time as the economy or the stock market does.

All of these significantly important indicators are discussed in depth as follows.

  1. Gross Domestic Product: GDP is defined as the final value of all the finished goods and services produced within a country’s national boundary, during a defined financial year or period. The components of GDP include private and public consumption, government spending, business investments, and the foreign balance of trade/net exports, i.e., the addition of exports and subtraction of imports in an economy.

As per the expenditure method, it is calculated as GDP = C + I + G + (X-IM) where C is consumption expenditure, I is investment expenditure, G is government spending and (X-IM) is exports minus imports. The output or income methods can also measure it.

  1. Balance of Payments: The record of all monetary and economic transactions (by individuals, businesses or the government) between a country and the rest of the world during a defined time period, a year or a quarter, provides the measure of BOP. It helps in monitoring the cash flow, depicting a surplus or deficit of funds, and should be zero in an ideal scenario. It comprises three elements- the current account minus the capital account and the financial account added together.
  • Unemployment: It primarily represents the labour market scenario in a country. A person is considered to be unemployed if he/she does not have a paid job or self-employment, is willing to work and actively looking for opportunities. While the unemployment rate is defined as the number of unemployed individuals as a proportion of the total workforce in an economy. Unemployment can be classified into three categories as structural, cyclical and frictional.
  1. Consumer price index: CPI is defined as a very general measure used for the estimation of price changes for a basket of goods and services, thus reflecting the consumption expenditure in an economy. It is also used to assess the changes in the purchasing power of currency and determine the rate of inflation, by proxy. This indicator can largely guide to make better decisions and amend policies if needed.

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