True Economic Indicator

What is a true indicator for a country’s economy? The most prominent indices are often used as a proxy for the current status of the market and by extension the economy. However, the stock market only represents the bigger and stronger companies in the economy, that were capable enough to get publicly listed. It does not account for the small businesses, the out of the garage shops and the unorganised sector. They form a considerable part of the economy and probably are the first to feel repercussions from an impending downturn. They are first to lose access to capital and debt. Is GDP per capita a good indicator of the economy? Well, it averages out the difference between the 2 sides, one represented within the stock market and the rest.

Measuring national income can account for all parts of the economy, but it is a lagging indicator. It measures the state after the fact. Similarly, the yield curve on risk free instruments is a leading indicator, where it measures the overall market sentiment for a future time horizon. Some indicators are used to indicate the economic activity that occurs between the economies, for example the Baltic Dry Index. Could a combination of these be used to offer a more complete picture of the economy. A starting point could be to classify all the different economic activity that happens within an economy and how each of them can be measured fairly accurately in a given time frame.

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