There are several indicators that reveal an economy's health.
The health of an economy is typically tied to indices showing economic activity and growth. Indicators tied to such key categories as employment, personal income, consumer consumption and confidence, housing prices, and corporate activities and profits are all used to measure how well (or how poorly) an economy is performing. The Gross National Product (GNP) is the most well known of the economic indices, but there are individual factors that contribute to the GNP that indicate the economic health of a country.
Jobs
Job growth and, conversely, job loss are the most significant indicators of how a nation’s economy is doing. As an example, during the 16 months between October 2008 and March 2009, the United States lost 5.7 million jobs. In 2010, the unemployment rate hovered near 10 percent, nearly double the rate for a healthy U.S. economy. Though the loss of jobs and high unemployment rate were symptoms of a deep recession, in the example of the United States, traditionally, the peaks and valleys of employment are a good indicator of economic performance.
Median Household Income
The median income of a household is a strong indicator of overall economic performance. When the median household income rises, a nation’s economy is seen as growing. Household income is fueled by rising salaries and wages for employees. Median household income is a prime indicator of economic performance on several fronts. Lower median incomes or stagnant incomes show a lack of growth among employers and are seen as a sign of a recession. A higher median income not only shows growth in jobs but also indicates that consumers can spend more on goods and services. In the U.S., as an example, consumer confidence and consumer spending represent a significant portion of the GNP and fuel economic growth.
Consumer Spending and Confidence
Anyone with a vested interest in the stock market will have a good understanding of how much of an impact consumer spending has on the economy. Investors react to the whims of consumers due to the importance of consumer spending, especially in the U.S. Consumer spending not only has an impact on the retail sector, but on the manufacturing, service and commodities industries. If consumers are not buying automobiles, clothing, electronics, and other goods and services, suppliers, manufacturers and retailers all suffer. When consumers are confident in their jobs and the economy, then goods and services are being purchased, shelves and warehouses are being stocked, and factories are humming. While it is not the perfect indicator, consumer spending activities and confidence are a strong factor in how an economy is performing.
