Leading Indicator - economic data that is believed to indicate future moves in the economy. For example, the producer price inflation rate is a leading indicator of inflation for the overall economy. And applications for housing starts are seen as a leading indicator of economic activity - if the number of housing starts is strong then as those builders buy material to construct the houses they will stimulate the economy (in addition those houses will be bought and filled with new furnishings).
While useful to a degree, in practice, leading indicators have proven to be fairly unreliable.
Related Terms:
- Lagging Indicator - economic data that is believed to follow changes in the economy. For example, the length of average unemployment is a lagging indicator.
- Coincident Indicator - economic data that is believed to represent real time economic conditions.
Makeup of the Conference Board Indexes (source link - Jan 04)
Leading Indicators:
- Average weekly hours, manufacturing .1946
- Average weekly initial claims for unemployment insurance .0268
- Manufacturers' new orders, consumer goods and materials .0504
- Vendor performance, slower deliveries diffusion index .0296
- Manufacturers' new orders, nondefense capital goods .0139
- Building permits, new private housing units .0205
- Stock prices, 500 common stocks .0309
- Money supply, M2 .2775
- Interest rate spread, 10-year Treasury bonds less federal funds .3364
- Index of consumer expectations .0193
Coincident Index:
- Employees on nonagricultural payrolls .5186
- Personal income less transfer payments .2173
- Industrial production .1470
- Manufacturing and trade sales .1170
Lagging Index:
- Average duration of unemployment .0368
- Inventories to sales ratio, manufacturing and trade .1206
- Labor cost per unit of output, manufacturing .0693
- Average prime rate .2692
- Commercial and industrial loans .1204
- Consumer installment credit to personal income ratio .1951
- Consumer price index for services .1886
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