a. An economic indicator is a measure that provides information about the state of the overall economy.
i. A leading economic indicator is a measure that has turning points that precede changes in the economy.
ii. A coincident economic indicator has turning points that coincide with the changes in the economy.
iii. A lagging economic indicator has turning points that are later than changes in the economy.
b. There are a number of economic indicators that reflect different dimensions of economic activity (that is, income, spending, money supply, hours worked, borrowing, and unemployment).
Leading Economic Indicators
1. Average weekly hours
2. Average weekly initial claims for unemployment insurance
3. Manufacturers’ new orders for consumer good and materials
4. Vendor performance, the slower deliveries diffusion index
5. Manufacturers’ new orders for nondefense capital goods
6. Building permits for new private housing units
7. S&P 500 Index
8. Money supply, real M2
9. Interest rate spread between 10-year Treasury yields and the federal funds rate
10. Index of Consumer Expectations
Coincident Economic Indicators
1. Aggregate real personal income
2. Employees on nonfarm payrolls
3. Industrial Production Index
4. Manufacturing and trade sales
Lagging Economic Indicators
1. Average duration of unemployment
2. Inventory-to-sales ratio
3. Change in unit labor costs
4. Average bank prime lending rate
5. Commercial and industrial loans outstanding
6. Ratio of consumer installment debt to income
7. Change in the consumer price index for services
c. Diffusion Index: It tries to capture the proportion of a composite moving in the same direction.
d. The relationship between an economic indicator and the phase of a business cycle depends on whether the indicator is a leading, coincident, or lagging indicator.