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How We Measure the Economy’s Direction**

Purpose

Explain the core indicators that show whether the economy is expanding, slowing, or contracting — the “speedometer” of the economic system.

Core Principle

Growth Indicators = Signals of Where the Economy Is Heading**

These metrics measure:

• how much is being produced

• how fast businesses are investing

• how confident firms are

• how strong underlying momentum is

Growth indicators don’t predict the future — they reveal the present trajectory.

The Four Growth Indicators

These are the most important measures of real economic activity:

1. GDP — The Broadest Measure of Economic Output

GDP captures the total value of all goods and services produced.

GDP rises when:

• consumer spending increases

• business investment expands

• government spending grows

• exports rise

GDP falls when demand weakens or production contracts.

GDP is the clearest summary of economic health.

2. ISM Manufacturing & Services — Business Conditions in Real Time

These surveys measure whether activity is expanding or contracting.

Readings:

• Above 50 → expansion

• Below 50 → contraction

ISM signals:

• new orders

• production

• hiring intentions

• supplier delays

• pricing pressures

Businesses use these data to plan production and staffing.

3. Business Investment — The Forward-Looking Driver

Business investment shows how confident companies are about the future.

Investment includes:

• equipment

• technology

• buildings

• software

• automation

Rising investment → optimism about demand and productivity.
Falling investment → caution and slowing growth.

Investment amplifies future productivity.

4. Productivity — The Long-Term Engine of Prosperity

Productivity measures output per worker or per hour.

Productivity rises when:

• technology improves

• processes become efficient

• capital investment increases

• workers gain skills

High productivity → higher living standards and long-term growth.
Low productivity → stagnation and slower wage growth.

Productivity is the economy’s long-term power source.

The Growth Equation

Growth momentum can be summarized as:

Economic Growth = Spending + Production + Investment

Higher spending → more output.
More output → more jobs.
More investment → more future growth.

What This Explains

Understanding growth indicators clarifies:

• why economies accelerate before recessions end

• why CEOs watch new orders and investment closely

• why productivity determines long-term wealth

• why GDP alone never tells the full story

• why manufacturing slowdowns often precede broader weakness

• why sustained growth requires capital investment

Why This Comes First in the Dashboard Section

Before interpreting labor, inflation, or financial indicators, you must understand:

• whether production is rising or falling

• whether business confidence is strengthening or weakening

• whether investment is expanding or contracting

Growth indicators set the context for everything else — they are the economy’s directional signals.