Author Scott Boyles
It is surprising the amount of people getting caught up in trying to predict the future with statistics and numbers in the news. I put together a list of both leading and lagging indicators typically referenced in the media.
Leading economic indicators are statistics and data points that provide insights into the future direction of an economy. Here are ten leading economic indicators:
- Consumer Confidence Index: Measures the confidence of consumers in the overall state of the economy. When consumer confidence is high, it often indicates strong future consumer spending.
- Stock Market Indices: The performance of stock markets, such as the S&P 500 or the Dow Jones Industrial Average, can provide insights into investor sentiment and economic health.
- Business Confidence Index: Reflects the confidence of businesses in the economy. High business confidence can lead to increased investment and hiring.
- Manufacturing Purchasing Managers' Index (PMI): Measures the health of the manufacturing sector. An increasing PMI suggests economic expansion.
- Non-Manufacturing PMI: Similar to the Manufacturing PMI, but focused on the services sector. A rising Non-Manufacturing PMI indicates growth in services industries.
- Housing Starts: The number of new residential construction projects beginning in a given period. A rise in housing starts can indicate economic growth.
- Initial Jobless Claims: The number of people filing for unemployment benefits for the first time. Rising claims can be a sign of economic trouble.
- Money Supply (M2): Measures the total supply of money in the economy. Rapid increases can indicate potential inflation or economic expansion.
- Yield Curve: The relationship between short-term and long-term interest rates. An inverted yield curve (short-term rates higher than long-term rates) can signal an impending recession.
- Building Permits: The number of permits issued for new construction projects. An increase suggests confidence in future economic activity.
Lagging economic indicators are data points that reflect the state of the economy after it has already experienced changes. Here are ten lagging economic indicators:
- Gross Domestic Product (GDP): GDP measures the total value of goods and services produced within a country's borders. It's a lagging indicator because it takes time to compile and is only available after a specified period.
- Unemployment Rate: While initial jobless claims are leading indicators, the overall unemployment rate, which is published monthly, lags behind economic changes. It reflects past employment trends.
- Corporate Profits: Corporate profit reports are usually released quarterly and reflect past financial performance, making them lagging indicators.
- Labor Costs: Labor costs per unit of output, including wages and benefits, are lagging indicators because they reflect historical compensation levels.
- Interest Rates: Changes in interest rates by central banks typically follow economic developments. They can take time to have an impact on the economy.
- Consumer Price Index (CPI): The CPI measures changes in the prices of a basket of goods and services. It reflects past inflation or deflation trends.
- Producer Price Index (PPI): Similar to the CPI, the PPI measures changes in the prices of goods at the wholesale level. It lags behind changes in producer costs.
- Industrial Production: This index reflects the output of the industrial sector, including factories, mines, and utilities. It takes time to compile and is thus a lagging indicator.
- Business Inventories: The level of business inventories, including raw materials and finished goods, is reported periodically. It reflects past production and sales trends.
- Retail Sales: Monthly retail sales figures show consumer spending patterns, but they reflect past consumer behavior rather than predicting it.
These are just a small handful of the millions of data points economists and other experts try to predict the overall health of an economy. Pinpointing exactly where “the markets” is going by focusing on specific data points is not going to get you anywhere. Keep this in mind when you hear people talk about economic health. If you do look at the raw number vs expectation, a better analysis is if the number is trending better or worse than the last data point. The best analysis is to have a plan or investment strategy ignoring the short-term noise and stay focused on the long term.