Current Recession Affects Choice of Economic Indicators

Lab experiments in the field of economics are clearly an impossibility. Thus, economic tools and theories are largely tested solely during dramatic macroeconomic events. The current "Great Recession" is no different. Our understanding of various tools and measurements has changed substantially. Thus, we use different indicators to either give us hope or paint a grimmer portrait during the Great Recession than we did during the Great Depression. Notable changes include a strong preference for using the Institute of Supply Management's manufacturing index, credit spreads, and employment data as indicators. ISM's manufacturing index "quizzes manufacturers on new orders, production, employment, and inventories, among other topics" and has a favorable record in predicting growth and employment. Credit spreads are likely popular in large part because of the role credit played in creating the current crisis. This particular indicator depicts the level of trust between players in the credit industry. Employment data is naturally vital as it plays a large role in the health of the economy. Alternatively, raw commodity prices have fallen out of favor with the economic community. They failed quite noticeably as predictors in the previous cycle, leading many economists in 2008 yo deny the recession because commodity prices were still high. Housing data is also less popular as it is clear that previous favorable signs in housing pointed not to strong economic performance but a bubble that was about to burst. More established macroeconomic indicators such as GDP or the yield curve are still held in high regard and likely always will be, but the current recession has refined our understanding of more subtle indicators.