Leading Economic Indicators

According to an article in World Almanac Book of Facts, 2003, leading economic indicators are those that lend to rise or fall in advance of the rest of the economy. The index of leading economic indicators is a composite of eleven economic measurements developed to help forecast likely changes in the economy as a whole. The conventional is as follows: Typically, three consecutive monthly leading economic indicator changes in the same direction suggest a turning point in the economy. The components are:

Building permits, durable order backlog,

The M2 money supply which includes all coins, currency held by the public, travelers checks, checking account balances, automatic transfer service accounts, and balances on deposit in credit unions, in addition to savings and small time deposits, overnight Repos at commercial banks, and non-institutional money market accounts.

Index of consumer expectations and consumer confidence, which is based on survey of several thousand households (“Index of Leading Economic Indicators”, 2003, 107).

The index of leading economic indicators is intended to forecast or foretell economic activity six to nine months in the future. For this reason, the use of leading economic indicators to forecast economic conditions eighteen months ahead is difficult. Put simply, the further out one forecasts, the more significant becomes the probability of error.

According to The Financial Forecast Center (Online), the following predictions can be made with some confidence about the next six months:

U.S. Gross Domestic Product in Billions, Seasonally Adjusted

U.S. Unemployment Rate %, Seasonally Adjusted

Total Housing Starts (U.S.). Thousand Units·Seasonally Adjusted Annual Rate

U.S. Producer Price Index, All Commodities. 1982=100-Not Seasonally Adjusted.

U.S. Consumer Price Index All Urban Consumers. 1982-1984=100. Non Seasonally Adjusted

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