Understanding Diffusion Indexes: Insights and Applications

Santiago Pinto ()

Richmond Fed Economic Brief, 2025, vol. 25, issue 5

Abstract: Diffusion indexes (DIs) are statistics that offer timely glimpses into the state of the economy.1 Frequently constructed from responses to qualitative surveys, these indexes provide a snapshot of the direction and breadth of change in key economic variables. Typically, these surveys ask participants to report whether a specific variable — such as employment or business conditions — improved, declined or remained unchanged compared to a previous period. The responses are then aggregated to calculate a DI, often expressed as a percentage. A DI above a certain threshold — which varies depending on the weighting method — typically signifies an expansionary scenario, while a DI below the threshold indicates a contractionary one. The appeal of DIs generally lies in their timeliness, simplicity and relatively low cost of participation. They offer insights into economic conditions more rapidly than traditional economic data releases, making them valuable tools for policymakers, analysts and market participants.

Keywords: Diffusion indexes; economic activity (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.richmondfed.org/publications/research/economic_brief/2025/eb_25-05 Briefing (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedreb:99504

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Richmond Fed Economic Brief from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().