There are various economic activities that one can look at to try to identify where the economy is in the business cycle. An individual can also use these economic indicators as a way to try and predict the direction of the economy in the future. The 3 types of economic indicators are:
- Leading indicators
- Coincident indicators
- Lagging indicators
Leading indicators are business conditions that change prior to a change in the overall economy. These indicators can be used as a gauge for the future direction of the economy. Leading indicators include:
- Building permits
- Stock market prices
- Money supply (M2)
- New orders for consumer goods
- Average weekly initial claims in unemployment
- Changes in raw material prices
- Changes in consumer or business borrowing
- Average work week for manufacturing
- Changes in inventories of durable goods
Changes in the economy cause an immediate change in the activity level of coincident indicators. As the business cycle changes, the level of activity in coincident indicators can confirm where the economy is. Coincident indicators include:
- Industrial production
- Personal income
- Average number of hours worked
- Manufacturing and trade sales
- Non agricultural employment
Lagging indicators will only change after the state of the economy has changed direction. Lagging indicators can be used to confirm the new direction of the economy. Lagging indicators include:
- Average Duration of Unemployment
- Corporate profits
- Labor costs
- Consumer debt levels
- Commercial and industrial loans
- Business loans
Economic Policy And The Federal Reserve
InsightsA leading indicator is a measurable economic factor that tends to change right before the economy starts to change.
InsightsInvestors can learn a lot, or very little, from these indicators once they know how to use them.
InvestingUnderstanding these investing tools will put the market in your hands.
InsightsInvestors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
TradingUnfortunately, there is no perfect investment strategy that will guarantee success, but you can find the indicators and strategies that will work best for your position.
TradingWondering how people like Elliott and Gann built their famous trading tools? Learn the basics of constructing an indicator.