Tuesday, August 11, 2009

Economic Indicators

If you're studying for the Series 7 exam right now, you picked a pretty good time. Every day the economy is in the news, it seems, and the news typically uses some of the same terminology you'll see on the test: new unemployment claims, unemployment rate, consumer confidence, corporate profits, GDP, recession, economic stimulus, etc. Try to relate what you're hearing, seeing, and reading in the news with what you're studying for your exam. When the media begins to chatter about new unemployment claims dropping, remember that this is a leading indicator, and it's good news. Recently, it was reported that while new claims for unemployment were dropping, the unemployment rate rose slightly. That's the difference between a leading indicator and a coincident indicator. The number of new unemployment claims was changing before it was being reflected in the number of people who remain on unemployment. GDP, a coincident indicator, has been shrinking, but since the rate of shrinkage has slowed lately, some economists point to this as "good news." The stock market, a leading indicator, has been rising since March, and many people pin their hopes of a recovery on that signal. If it seems that nobody really knows where the economy is headed over the next year or so, there is good reason for that--nobody does. But that doesn't stop anyone from reading the economic indicators and using the numbers to make predictions about the economy. Your job is to know which indicators are leading, coincident, and lagging, and to know their significance. Expect two or three questions on economic indicators on the Series 7 exam.

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