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What are Leading Economic Indicators?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 22 September 2016
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Economic indicators are figures that provide insight about the condition of an economy. There are certain figures which are believed to fluctuate before the state of the economy actually changes. These are known as leading economic indicators and include statistics such as employment rates, gross domestic product (GDP), and consumer confidence. These figures can be used by individuals, politicians, and investors.

There are certain factors commonly used to determine how the economy is doing at present or to provide indications of how it will do in the future. From this group of economic indicators, a more select set of factors can be chosen, which are believed to change ahead of the rest. These are known as leading economic indicators. The importance of these figures is that, if assumptions are correct, they are the future manifested in the present and they can provide indication of what should be done to cope with upcoming conditions.

While calculating, analyzing, and interpreting leading economic indicators can indeed be complicated, understanding the principle of them does not have to be. Consider a thermometer. It is a tool that determines the temperature at present but within a given day the readout may change. It can also provide indications about the future because changes are only likely within a certain range so it is unrealistic to expect the temperature to go from below freezing to a heat wave.

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Imagine, however, if the temperature at certain points in the day could be analyzed separately and used to show what the temperature will be in the future. Those certain temperatures that were isolated to foresee the future would be the leading economic indicators.

One of the most important items in this category is the GDP. This is a statistic that determines whether the levels of production of goods and services has changed in an allotted time. Consumer confidence is a measure of how people feel or acted with regards to spending money. If there is little spending, this provides insight that the economy is not at its prime because money is not circulating optimally.

Leading economic indicators are important to several groups of people, although generally for different reasons. Employment rates, for instance, provide insight on how many people are employed, how many people lost their jobs, and how many jobs are likely to become available in the future. For a job seeker, this information can be used to help him determine how good his chances are of getting hired. For a senator, this information may be a prompt to initiate a job creation strategy.

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