SEVERAL CHANNELS

The main relationships between the different components of GDP and the various economic indicators (hard economic data, as well as surveys) are illustrated in diagram below. Note that, for simplicity, all the reasoning is done assuming all other things are equal. For instance, traditional surveys will gauge manufacturer’s opinions on current and future levels of output growth inventories etc., which helps form an opinion on industrial production.

On the expenditure side, let us assume labour market data recorded a decline in the unemployment rate. In as much it implies richer and more confident consumers (that is, a boost in consumer confidence and consumer disposable income), this will mean stronger sales and stronger consumer spending. Higher household income also means more tax receipts, which should influence the government balance.