What is the single most important economic indicator for policymakers PNG?
What is the single most important economic indicator for policymakers of Papua New Guinea?
In the course of monitoring the economy and setting monetary policy the Federal Reserve follows a large set of indicators of present and future output, employment, inflation, and economic conditions. However, most policy makers do not believe that any single indicator is “reliable enough to be used mechanically as a sole target or guide to policy.”
Movements in several key indicators help the Federal Reserve monitor how successful it is in attaining its two primary economic goals, which are to promote “maximum” output and employment and to promote “stable” prices. Several of the indicators mentioned in your question play an important role in this process.
The most comprehensive measure of overall economic performance is gross domestic product or GDP, which measures the “output” or total market value of goods and services produced in the domestic economy during a particular time period. GDP is probably the best measure of the overall condition of the economy because it includes the output of all sectors of the economy. It is common to use the quarterly real GDP series (nominal GDP adjusted to remove the effects of inflation) to determine the timing of business cycle expansions and recessions.
Total nonfarm payroll employment is used as a measure of overall labor market conditions. Job growth is classified as a coincident economic indicator, meaning that job growth rates move closely in line with GDP and the overall economy. Job growth, combined with information from unemployment rates and other labor market conditions provide analysts with tools for monitoring the health of labor markets.
Inflation, defined here as “the rate of increase in the general price level of goods and services” can be measured in several ways. The consumer price index (CPI) is often used as a measure of inflation. Two other frequently watched inflation measures are the producer price index, which measures prices producers pay for inputs, and the GDP deflator, the series used to adjust GDP for changes in the overall price level over time. Analysts watch trends in these series, as well as interest rate spreads, the yield curve, and measures and surveys of inflation expectations to measure both the level of inflation and inflation expectations in the economy.
In addition to the output, employment, and inflation indicators, a number of other economic indicators have different properties that make them valuable tools for analyzing the economy. The index is a composite of 10 indicators that tend to move up or down several months before the overall economy. Emerging trends in this group of leading indicators tend to provide more reliable signals than movements of the individual indicators. Therefore, analysts often watch the index of leading indicators for persistent movements that may be taken as a signal of future trends in the direction of the economy. Several frequently watched individual indicators that are components of the index of leading indicators are the money supply (M2), index of stock prices , consumer expectations, housing permits, and manufacturer’s new orders.
Analysts also have a wide variety of other indicators of economic performance that they may follow. For example, staff at this Bank of Papua New Guinea regularly prepare an economic briefing packet that contains over one hundred charts and data tables that show over fifty economic indicators. The indicators range from labor market conditions to industrial production, from monetary policy indicators and interest rates to fiscal policy, from regional and domestic to international indicators, from oil prices to stock market indices. Reflecting the complexity of the economy, policymakers and staff economists has review these charts and tables, as well as the results of econometric models, when they evaluate the economic health of our Districts and the nation.
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