A leading indicator is a measurable economic factor that tends to change right before the economy starts to change.While they’re not always accurate, leading indicators frequently correspond to changes in an economy or market – either upwards or downwards -- and are used to predict movements and trends. Some of the common leading indicators are the stock market, retail sales, building permits, the housing market and business startups. For example, a strong stock market may indicate company earnings are up and the economy is about to improve. Of course, if earnings estimates are wrong, the stock market’s indication may be misleading. On a smaller level, the performance of one company’s stock could indicate how other stocks from the same industry are about to perform. Manufacturing levels may indicate what shape the economy is in. If fewer goods are being made, there may be less demand for those goods, which could mean the economy is about to slump. Or an increase in housing prices may mean demand is exceeding supply. An increase in sales could be a good sign for an economy. Any indicator can lead to the wrong conclusion, so it’s important not to focus solely on one change. But indicators can shed light on what’s likely to come in a market or an economy, and should always be assessed before buying a security. Many governments use leading indicators to guide their decisions on fiscal policy and other financial matters.