Macroeconomic Indicators

Overview

Framework

IRON LAW: Leading, Coincident, or Lagging — Know Which Type

GDP growth is LAGGING — by the time it's published, the economy has already
changed. Stock markets and PMI are LEADING — they predict future direction.
Unemployment is LAGGING — it rises after a recession starts.

Using a lagging indicator to predict the future is looking in the rearview mirror.
Match the indicator type to your analysis purpose.

Key Indicators

• Type: Lagging
• Measures: Total economic output
• Key signals: 2 consecutive quarters of negative growth = technical recession
• Taiwan: Published quarterly by DGBAS

• Type: Coincident
• CPI = consumer prices, PPI = producer prices (leading indicator for CPI)
• Target: Most central banks target ~2%
• Taiwan: CPI published monthly by DGBAS

• Type: Lagging
• Natural rate varies by country (~3.5-4% for Taiwan)
• Watch U-3 (official) vs broader measures that include underemployment

• Central bank policy rate (台灣央行重貼現率)
• Raising rates → slows economy, fights inflation, strengthens currency
• Lowering rates → stimulates economy, risks inflation, weakens currency

• TWD/USD, TWD/JPY, TWD/CNY for Taiwan-centric analysis
• Depreciation → exports cheaper but imports more expensive
• Watch real effective exchange rate (REER) for trade competitiveness

• Type: Leading
• Above 50 = expansion, below 50 = contraction
• Published monthly, available before GDP data

Indicator Relationships

Central bank raises rates
  → Borrowing costs rise
    → Consumer spending slows + Business investment slows
      → GDP growth slows
        → Unemployment rises (with lag)
          → Inflation falls (the goal)

Analysis Steps

1. Gather current data for 5-6 key indicators
2. Classify each as leading/coincident/lagging
3. Identify trends (improving, stable, deteriorating)
4. Check for divergence (leading indicators pointing different direction from lagging = inflection point)
5. Assess implications for the specific business/industry context

Output Format

# Macroeconomic Assessment: {Country/Region}

## Indicator Dashboard
| Indicator | Current | Previous | Trend | Type |
|-----------|---------|----------|-------|------|
| GDP Growth | X% | X% | ↑/↓/→ | Lagging |
| CPI Inflation | X% | X% | ↑/↓/→ | Coincident |
| Unemployment | X% | X% | ↑/↓/→ | Lagging |
| Policy Rate | X% | X% | ↑/↓/→ | — |
| PMI | XX | XX | ↑/↓/→ | Leading |
| Exchange Rate | X.XX | X.XX | ↑/↓/→ | — |

## Economic Phase
{Expansion / Peak / Contraction / Trough}

## Key Signals
- Leading indicators suggest: {direction}
- Divergence: {if any — e.g., PMI falling while GDP still positive = slowdown ahead}

## Business Implications
- For {industry}: {specific impact}

Examples

Correct Application

Incorrect Application

• "GDP grew 3.2% last quarter, so the economy will grow next quarter too" → GDP is lagging. PMI at 48.5 suggests otherwise. Violates Iron Law: using lagging indicator to predict future.

Gotchas

• Headline vs core inflation: Headline CPI includes volatile food and energy. Core CPI excludes them. Central banks focus on core for policy decisions.
• Real vs nominal: Always specify. "GDP grew 5%" — nominal or real? Real GDP adjusts for inflation and shows true growth.
• Seasonal adjustment: Unemployment, retail sales, and many indicators are seasonally adjusted. Compare adjusted-to-adjusted, never adjusted-to-raw.
• Taiwan-specific: Taiwan's economy is heavily export-dependent. TSMC's revenue guidance is arguably a better leading indicator for Taiwan than generic PMI.
• Data revision: Initial GDP estimates are revised 2-3 times. Don't overreact to first releases.

References

• For business cycle theory, see the econ-business-cycle skill
• For Taiwan-specific economic data sources, see

  references/taiwan-data-sources.md