Friday, January 4, 2013

GDP and indicators thereof

On Monday, we're going to learn about national income, the amount produced in an economy, and how we measure it - Gross Domestic Product, or GDP. GDP is only ever available with a significant lag - so currently, we have no real idea what happened in the last three months of 2012, and won't know for a few weeks yet.

Because of this, many other bits of information are often used to get some sense of what is going on.  David Smith (Economics Editor at the Sunday Times and a keen blogger), points out that the Purchasing Managers' Index (PMI) serves just that purpose, and if it is to be believed, then GDP numbers for 2012Q4 may well be disappointing (in the sense that suggest low or even negative growth).

The PMI considers the actions of those charged with making orders at private sector companies in the economy, surveying them to ask whether they believe conditions are getting better, worse or not changing. If the index falls, it suggests that the general perception amongst those active in the economy is that things are getting worse, and if it rises, it is a suggestion of growing confidence, which usually translates into growth.

More about this in the coming weeks...

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