There are several economic factors that change prior to, after, or simultaneously with the business cycle. These factors are examined by analysts to determine the current state of the economy. We will examine the three common types of indicators below.

  • Leading Indicators: A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy, but are not always accurate. Bond yields are typically a good leading indicator of the market because traders anticipate and speculate trends in the economy.
    Other types of leading indicators include:
    • building permits (new private housing)
    • industrial production rates
    • money supply
    • S&P 500
    • average of weekly unemployment insurance claims
       
  • Lagging Indicators: A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend. Lagging indicators confirm long-term trends, but do not predict them. Interest rates (especially the prime interest rate) are a good lagging indicator; rates change after severe market changes. Other examples are:
    • unemployment rates
    • corporate profit
    • labor cost per unit of output
       
  • Coincident Indicators: An economic factor that varies directly and simultaneously with the business cycle, thus indicating the current state of the economy.
    Some examples include:
    • nonagricultural employment
    • personal income
    • inventory/sales ratio

Economic indicators can have a huge impact on the market and knowing how to interpret and analyze them is important for all investors.

Without further ado, the tutorial Economic Indicators to Know will examine 11 economic indicators we feel investors should understand.

Each one tells a story, so hopefully our explanations will help you interpret them like a pro. Note that you will not be tested on the details contained in this tutorial on your upcoming Series 6 exam.



International Economic Factors

Related Articles
  1. Insights

    What is a Leading Indicator?

    A leading indicator is a measurable economic factor that tends to change right before the economy starts to change.
  2. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
  3. Trading

    4 Key Indicators That Move The Markets

    Find out what reports to watch in order to anticipate and react to market movements.
  4. Investing

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  5. Trading

    What is an Indicator?

    Investors use indicators to measure economic conditions and forecast financial and economic trends.
  6. Insights

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  7. Insights

    Explaining Economic Indicators

    Investors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
  8. Insights

    Introduction To Coincident And Lagging Economic Indicators

    Investors can learn a lot, or very little, from these indicators once they know how to use them.
  9. Trading

    How To Build A Trading Indicator

    Wondering how people like Elliott and Gann built their famous trading tools? Learn the basics of constructing an indicator.
Trading Center