Economic Indicator

Economic indicators are statistical measures used to analyse economic performance and to forecast future trends within an economy. By tracking changes in production, employment, prices, spending, credit conditions and other variables, analysts can identify patterns associated with business cycles and assess the health of both national and local economies. Governments, financial institutions and private organisations rely on these indicators to inform policy decisions and economic planning.
Economic indicators cover a wide range of datasets, including unemployment rates, housing starts, consumer price indices, industrial production figures, bankruptcies, credit conditions, retail sales, stock market indices and gross domestic product. In the United States, key producers of official indicators include the Bureau of Labor Statistics, the Census Bureau and the Bureau of Economic Analysis, while the National Bureau of Economic Research plays an influential role in determining business cycle turning points.

Classification by Timing

Economic indicators are commonly classified according to their relationship to the business cycle. They may be leading, lagging or coincident indicators depending on whether they tend to change before, after or at the same time as the wider economy.

Leading Indicators

Leading indicators are metrics that tend to shift in advance of changes in the overall economy, making them useful for predicting turning points in business cycles. Although not infallible, these indicators provide early signals of economic expansion or contraction.
Common leading indicators include:

• Average weekly hours in manufacturing, which tend to adjust before employers undertake hiring or layoffs.
• Initial claims for unemployment insurance, which are particularly sensitive to current business conditions and often shift before broader unemployment measures.
• Manufacturers’ new orders for consumer goods and materials, pointing to future production levels.
• Vendor performance (slower deliveries index), where longer delivery times may imply rising demand and supply chain strain.
• Manufacturers’ new orders for non-defence capital goods, a proxy for future investment.
• Building permits for new housing units, which precede construction activity.
• Stock market prices, reflecting investor expectations of future economic conditions.
• Leading credit indices, incorporating financial variables such as yield spreads and loan conditions.
• Interest rate spreads, particularly the yield curve, which has historically been an accurate predictor of economic downturns when inverted.
• Consumer expectations indices, offering insight into anticipated consumer spending patterns.

These indicators collectively offer insight into forthcoming economic movements, especially when analysed as composite indices.

Lagging Indicators

Lagging indicators typically change only after the economy has begun to follow a particular trend. They confirm patterns that have already developed and are therefore used to validate analyses based on leading and coincident indicators.
Common lagging indicators include:

• Unemployment rates, which often rise or fall several quarters after turning points in economic activity.
• Duration of unemployment, indicating the depth of labour market weakness.
• Outstanding commercial and industrial loans, which reflect past borrowing conditions.
• Changes in service-sector consumer prices, indicating inflationary trends that follow shifts in demand.
• Labour costs per unit of output, showing how wages respond to earlier changes in productivity or demand.
• Inventory-to-sales ratios, which illustrate how firms adjust stock levels in response to past demand.
• Consumer credit-to-income ratios, signalling the consumer debt burden.
• Bank prime lending rates, which often adjust after broader interest rate movements.

These lagging metrics assist in evaluating the extent and persistence of economic trends.

Coincident Indicators

Coincident indicators move in line with the overall economy, providing real-time information about its current state. They are useful for identifying the present phase of the business cycle.
Major coincident indicators include:

• Gross domestic product, the broadest measure of economic output.
• Industrial production, capturing manufacturing, mining and utility output.
• Personal income excluding transfers, reflecting earnings from current economic activity.
• Retail and wholesale sales, providing a measure of consumer and business activity.
• Non-agricultural payroll employment, widely used as a measure of labour market health.

Composite coincident indices combine several of these variables to pinpoint peaks and troughs in economic activity more accurately.

Directional Patterns

Indicators may also be classified according to how they move relative to general economic performance:

• Procyclical indicators, such as GDP or employment, rise during economic expansions and fall during recessions.
• Countercyclical indicators, such as unemployment, move in the opposite direction, rising when the economy weakens.
• Acyclical indicators show no consistent relationship with the business cycle.