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Understanding Diffusion Indexes: Insights and Applications
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 ...