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Understanding Leading, Lagging, and Coincident Indicators

Michael Brown
Michael Brown
Senior Research Strategist
7 Feb 2024
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Economic indicators can be classified into one of the three above segments, based on how the indicator in question relates to the broader business cycle.

Leading Indicators

These are economic indicators which display a tendency to change trend in advance of the business cycle, and thereby the overall economy, doing so. As a result, leading indicators can be used in an attempt to predict the timing and direction of future economic shifts, and to define turning points in the business cycle.

Reports on building permits and housing starts are classic examples of a leading indicator, as a rise in either (or both) measures typically signals an increase in construction activity, subsequently suggesting an expanding economy. Sentiment surveys, of both businesses and consumers, are also leading indicators, given the close correlation between sentiment and future spending/investment plans. Some may also consider market-based indicators, such as the yield curve, and performance of equity markets, as leading economic metrics.

Lagging Indicators

Lagging indicators are, in many ways, the opposite of leading indicators, in that they tend to change trend after the overall economy has already done so. Hence, these are indicators which are typically backward-looking and rely on historical data to validate trends that have already occurred.

Many of the most impactful economic releases (in terms of realised market volatility) are lagging indicators, including GDP, labour market reports, inflation releases, and corporate earnings. For example, unemployment rising typically indicates that an economic downturn has already begun, with a softening labour market often one of the final steps before an economy enters recession.

Coincident Indicators

The final classification of indicators are ones which move - roughly speaking - simultaneously with the overall economy, helping to provide as close to a real-time snapshot as possible of economic conditions.

Coincident metrics include industrial production, retail sales, and personal income figures, all of which are typically released very shortly after the survey period concludes, thus helping to give a view of how the economy is performing at that very moment.


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The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

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