Entering into 2015, the United States has experienced a positive economic upswing after its last recession which took place during the housing bubble and endured from 2008 to 2009. Economic indicators compliment on proof that the U.S. economic has shown growth in 2013 and 2014. Economic gauges such as Index of Leading Economic Indicators (LEI Index), Real Gross Domestic Product (Real GDP), Consumers Price Index (CPI), the unemployment rate, and other supplementary indicators are economic tools that economist use to determine the current health of the economy. With understanding the current condition of the economy, economist can forecast the upcoming condition of the economy; therefore, it allows the Federal Reserves and the United States create economic plans if needed. In other words, with proper data proper theorizing, economist can guide the government organization who are in control of particular variables can have an influence in the economy. Government organizations such as the Federal Reserve and the Federal Open Market Committee (FOMC) use these economic tools to first forecast and then construct a plan to guide the U.S. to economic well-being.
The United States’ Real Gross Domestic Product (Real GDP), which is the value of goods and services measured through the use of a constant set of prices, has shown a positive growth. Before explaining Real GDP, we must take into consideration of Nominal GDP. While Real GDP explains what happens to expenditures towards outputs if quantities change but prices were constant, Nominal GDP explains how prices are measured at a current state. For this reason economist choose to use Real GDP over nominal GDP because the fluctuation of prices can be misleading. According to the U.S. Bureau of Economic Analysis, in the most recent recorded measured Real GDP in the 3rd quarter of 2014 was 16,205.591 billion of chained 2009 dollars. Real GDP was reported to have declined in the 1st quarter of 2014, but a number of recent indicators suggest that economic activity rebounded in the 2nd quarter. In the figure below, the graph in Figure 1 shows the steady growth of the U.S’s Real GDP.
Output being the greatest influential factor of the well-being of the economy, economist take a large interest in the LEI Index because a lot of the indicators have to do with output or affect output directly or indirectly. Primarily, output is influenced by labor, capital, technology, and other production factors. For instance, one of the leading indicators is the average workweek of production workers in manufacturing. If a firm asks employees to work more hours, then that suggests that the firm has a larger demand for its production; in other words, the firm see that that the increased labor for the demanded output will outweigh the cost of the additional hours of labor.
Because firms and households are the main two elements of an economy, it is essential to understand that the demand for work and demand for production directly influences the in the unemployment rate and Real GDP. In some cases when firms predict or forecast less demand in the near future, firms cutback in the amount of hours per week that they supplied their employees. These cutbacks then causes less income for household due the reduced hours, which directly causes a domino effect of a lower demand for production of goods and services. In other words the lower demand reduces the overall output of the economy. In result, the average work week for individuals in the workforce has a direct relationship correlation with the Real GDP outlook for the future.
Similarly with the average initial weekly claims for unemployment insurance, the number of individual in the labor force making new claims in unemployment insurance system is one of the most readily available indicator of the well-being of the labor force. The increase in the number of people making new claims for unemployment insurance indicates that…