I know these have been tested many times, but I always forget, what is the logic so that I can remember? Thanks a lot.
Hi @Hungry_turquoise_par, I think the question explanation walks through this pretty thoroughly, but let me know if there’s anything I can clarify!
A leading economic indicator provides insights into future economic growth or decline, most commonly measured by gross domestic product (GDP). The following are categorized as leading indicators:
A coincident economic indicator provides insights into current economic growth or decline, most commonly measured by gross domestic product (GDP). The following are categorized as coincident indicators:
- Number of employees on non-farm payrolls
- Average hours worked
- Personal income levels
- Industrial production levels
- Manufacturing sales
- Unemployment rate
A lagging economic indicator provides insights into past economic growth or decline, most commonly measured by gross domestic product (GDP). The following are categorized as lagging indicators:
- Changes in CPI levels
- Corporate profits
- Change in labor cost per unit of output
- Average duration of unemployment
I’ll add just a few things to @Justin’s comment above - there is some reasoning for a few of the indicators:
- S&P 500 = leading because the stock market’s performance is usually an indicator of where the economy is going in 6-12 months.
- Initial/new “stuff” = leading because initial claims of unemployment and new orders are indications of future activity. A person that just claimed unemployment may have months ahead of them of low or no pay, and there may be big economic problems ahead if it’s happening to a lot of people. New orders for goods show an accelerating economy. New building permits help determine if steel/wood/other building supplies will be bought across the economy.
- Corporate profits = lagging because corporations report their profits on a lag. For example, we’ll have “earnings season” in mid-late October, where many corporations will report their Q3 results from July, August and September.
Most of the others just “are what they are.”
I appreciate your input Brandon. These are great points help me remember.