Economic indicators are statistics released by the government, by non-profit organizations, and by private companies that share information about the economy. These indicators are broadly classified based on their timing. Leading indicators provide an idea of what economic conditions are coming in the near future. Lagging indications show what has happened in the economy in the recent past.
Leading economic indicators are statistics that give insights into economic health, business cycle stages, and status of consumers within the economy. They indicate changes in the economy before the economy shows any signs of change. Leading indicators are used by investors to help predict the direction of the economy and to make investment predictions.
Leading indications include:
Unemployment claims
Average earnings
Consumer confidence
Measures of consumer expectations
Consumer goods and materials spending
Manufacturer shipments
Inventories
Factory orders
Spending on non-defense capital goods, which includes manufacturer shipments, inventories, and orders
Building permits
New private housing
Interest rates, including the federal funds rate and spreads
Changes in the money supply, M2, by the Fed
Inventory changes
ISM manufacturing index, including supplier deliveries, imports, production, inventories, new orders, new export orders, order backlogs, prices and employment
Stock prices
The S&P 500 index
Changes in these numbers reflect what near-term changes are likely to occur in the broader economy. For example, the Consumer Confidence Index (CCI) is based on the Consumer Confidence Survey by the Conference Board, which reflects business conditions and potential future developments. The report highlights consumer attitudes, spending intentions, and expectations for stock prices, inflation, and interest rates.
Leading economic indicators show signs of change before the economy begins to show any material changes in their corresponding lagging indicators. Leading indicators can signal major changes. If these indicators fail to meet expectations, it can reflect either a bearish trend or a bullish trend ahead. These indicators are used by the Federal Reserve to make monetary policy decisions.
Leading indicators can be used individually or in tandem to give a broader picture of the U.S. economy.
Lagging economic indicators are measurable factors that change after the economic conditions or financial trends have already started to shift. They are used to confirm patterns or trends in the market after the fact. Commonly used lagging indicators include:
Net sales
Operating income
Return on investment
Real GDP growth
Unemployment rate
Corporate profits
Labor cost per unit of output
Retail sales
Average duration of unemployment
Average prime rate charged by banks
Consumer Price Index for Services
The U.S. Conference Board publishes a monthly index of lagging indicators along with its index of leading indicators. Leading indicators look forward. Lagging indicators look backwards.
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