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What are Leading Indicators?

Leading Indicators Definition. Leading Indicators are statistics that generally change before the economy as a whole does. They are therefore useful as short-term predictors of the economy. Stock market returns are a leading indicator. The stock market usually begins to decline before the economy as a whole declines and usually begins to improve before the general economy begins to recover from a decline in growth. Other leading indicators include the index of consumer expectations, building permits, and the money supply. Lagging indicators generally change after a trend has begun, and coincident indicators change during a trend. The Conference Board publishes a composite Leading Economic Index consisting of ten indicators designed to predict activity in the U.S. economy six to nine months in future. These components are the average workweek of production workers in manufacturing, average weekly unemployment claims, new orders for consumer goods and materials, vendor performance related to speed of delivery, contracts and orders for machinery and equipment, new building permits issued, changes between long and short interest rates, the S&P 500 index of stock prices, money supply adjusted for inflation, and the index of consumer sentiments.


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