Economic indicators are economic statistics that provide valuable information about where industry is in terms of the business cycle and they are generally grouped into three categories: lagging, coincident, and leading.
Leading economic indicators tend to move up or down a few months before business-cycle expansions and contractions. The Conference Board tracks 10 leading economic Indicators (i.e. stock prices, money supply, interest rate spread) When leading indicators are rising, the rest of the economy is likely to rise in the coming year. When leading indicators are declining, then the economy is likely to decline in 3 to 12 months.
Coincident economic indicators move up and down with the aggregate economy and the business cycle. The four coincident economic indicators tracked by the Conference Board are: employees on nonagricultural payrolls, personal income less transfer payments, industrial production, manufacturing and trade sales. By looking at coincident economic indicators such as industrial production or personal income you get an accurate picture of what the economy is like right now.
Lagging economic indicators tend to rise or fall a few months after business-cycle expansions and contractions. The Conference Board tracks seven lagging economic indicators (i.e. average duration of unemployment, inventories to sales ratio, average prime rate). Lagging economic indicators take 3 to 12 months to catch up with the aggregate economy i.e. as the economy contracts it takes 3 to 12 months to see significant changes in the ratio of consumer credit to personal income.
Related Terms: Stock Market Indicators – Sentiment Indicators – Stock Market Timing
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