Economics – Economic development | e-Consult

Answer:

Non-monetary indicators provide valuable insights into economic activity beyond the influence of monetary policy. Two key examples are the Consumer Confidence Index (CCI) and the CIPS (Construction Purchasing Managers' Index).

Consumer Confidence Index (CCI): This survey measures consumers' feelings about the current state of the economy and their expectations for the future. A high CCI suggests consumers are optimistic and likely to spend, boosting economic activity. It's a leading indicator, meaning changes in the CCI often precede changes in actual economic activity. Strengths include its relatively quick availability and ability to capture sentiment. Weaknesses include its subjective nature – based on consumer feelings which can be influenced by factors outside the purely economic (e.g., geopolitical events). It can also be prone to revisions.

CIPS Construction Purchasing Managers' Index (PMI): This index surveys purchasing managers in the construction sector about new orders, output, employment, and supplier deliveries. A PMI above 50 indicates expansion, while below 50 indicates contraction. The construction sector is a significant contributor to GDP, so the PMI provides a good gauge of overall economic health. Strengths include its objectivity (based on business activity) and its timeliness. Weaknesses include its sector-specific focus – it may not accurately reflect the performance of other sectors. Also, it can be subject to revisions and may not always predict future economic trends with perfect accuracy.

Comparison with Monetary Indicators: Monetary indicators like interest rates are controlled by the Bank of England and directly influence borrowing costs and investment. They are powerful tools for managing inflation and economic growth. However, they have a lagged effect – it takes time for changes in interest rates to impact the economy. Non-monetary indicators offer a more immediate view of economic activity and consumer/business sentiment. They are less directly controllable but can provide early warning signals. The best approach is to use a combination of both monetary and non-monetary indicators for a comprehensive assessment of the economy. Monetary indicators provide the policy levers, while non-monetary indicators provide the real-time assessment of the economy's response to those levers.