What is a Coincident Indicator?
A coincident indicator is a metric that shows the current state of economic activity within a particular area. Coincident indicators are important because they show economists and policymakers the current state of the economy. Coincident indicators include employment, real earnings, average weekly hours worked in manufacturing and the unemployment rate.
Understanding Coincident Indicators
Coincident indicators are macroeconomic measures that are as reflective as possible of the current situation. Economic indicators can be classified into three groups based on the time period that is being measured. Lagging indicators change after the economy collectively changes, coincident indicators show the current state of the economy, and leading indicators show where the economy is going. Coincident indicators are often used in conjunction with leading and lagging indicators to get a full view of where the economy has been and how it is expected to change in the future.
The Federal Reserve publishes coincident economic indexes compiled from a variety of coincident indicators. By compiling several indicators into an index, some of the short-term noise associated with individual indicators can be eliminated, giving a more reliable measure.
What Coincident Indicators Reveal About the Economy
Value of using coincident indicators stems from a nearly real-time assessment of how the economy is performing. The metrics that fall in this category, such as personal income and industrial production, help to give a snapshot perspective of what is happening and how markets and economies are responding to the factors that affect their direction.
By their nature, coincident indicators will change in parallel with the cycles of industry, commerce and the economy. Taking an assessment of coincident indicators is a way to realize what effect policies and trends are actually having. For example, if an upsurge in solar panel manufacturing is reported, it may show the effect that incentive programs for alternative energy sources are having. Payroll data can show the kind of current demand companies have for employees and their present levels of productivity. If salaries have increased from a comparable period, it may indicate that companies are engaging in more business, seeing increased revenue and can afford to pay higher salaries to attract skilled workers.
Referring to current payroll data as a coincident indicator can also show the capacity that employees have to spend money back into the economy. Increases in salary could allow for flexible expenses to increase, as well as create the potential for luxury expenditures. This would show that the economy is robust at the present moment and what segments of it are expressing the most strength and stability.