How to read the economy: a primer.

• Author: Levitan, Donald
• Position: Interpretation of economic indicators

"What is the meaning of these numbers?" Leading, coincident and lagging indicators, CPI, GDP and other measures of economic activity important to state and local finance officers are explained.

An average day in today's America begins with the print and electronic media battering the public with statistic after statistic detailing, but not explaining, changes in the economic scene. This nonconversation has people reading or listening to discussions of what is happening to the GNP, GDP, GSP, CPI and one or more of the triumvirate index of leading, coincident and lagging indicators. The purpose of this article is to describe in lay language these indicators and to discuss their importance.

GNP, GDP and GSP

The broadest indicator of economic output and growth measures the gross national product. It covers the goods and services produced and consumed in the private, public, domestic and international sectors of the economy. This indicator has been adjusted recently to distinguish between:

* the Gross National Product (GNP), which measures the market value of all goods that are produced, regardless if they are produced in another country or the U.S.A.; and

* the Gross Domestic Product (GDP), which measures the market value of all American goods; that is, those produced solely in the U.S.A.

The two measures of the GNP/GDP come from 1) the demand point, detailing the markets for goods and services, and 2) the supply point, detailing the costs in producing goods and services.

The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce provides GNP/GDP data on a quarterly basis through its monthly magazine, Survey of Current Business, and through press releases.

The Gross State Product (GSP), a relatively new concept, is the state counterpart of the nation's Gross Domestic Product (GDP). The GSP is the gross market value of the goods and services attributed to labor and property located in a specific state. GSP estimates are produced annually by the BEA.

At present, GSP estimates are prepared for 61 industries. For each industry, the value that goes into GSP contains four components: 1) compensation of employees, 2) business income with inventory valuation adjustment and capital consumption allowances, 3) indirect business tax (IBT) and nontax liability, and 4) other mainly capital-related charges. For the farming, mining, construction and manufacturing industries, BEA obtains the value for capital charges by directly estimating total...