Economic indicators measure the economic activity within a country or economic region. They are usually collected at frequent intervals, often monthly or quarterly, and are usually weighted and indexed according to different criteria allowing for meaningful comparisons between different points in time. Generally, economic indicators are divided into three categories: leading indicators, lagging indicators, and coincident indicators.
What is the difference between leading, lagging, and coincident economic indicators?
The difference between leading, lagging, and coincident economic indicators is their purpose and the time for when they can be used as a signal. Leading indicators signal future changes and are therefore useful for making short-term predictions. Stock market indicators are a common example of leading indicators. Usually stock market returns will start to decline prior to an economy slipping into recession, and vice versa. Unemployment is the classic example of a lagging indicator. Movements in unemployment figures usually occur after the underlying economic conditions have begun to change, meaning that the unemployment rates would decrease several quarters after an economy has rebound from a recession.
Wages are often provided as an example of a coincident indicator. If the economy is strong and business is going well, personal income rates will increase at about the same time. However, the line between coincident and other indicators is sometimes blurred. GDP is considered by many to be a coincident indicator, not a lagging indicator, on the basis that it can be used to estimate current levels of economic activity. Others question this, pointing out that current GDP figures are estimates that are revised at some point in the future, which makes them much less accurate than values calculated for past time periods.
Inflation and other important indicators
Changes in consumer prices are also often considered by many to be a lagging indicator. By their nature, lagging indicators cannot be used directly to predict economic changes; their use is in confirming specific patterns after the fact (which can then serve as the basis for further predictions). However, an economic recession may follow a period of high inflation rates as people spend less in order to save money. 2022 has seen a surge in consumer prices all over the world after the COVID-19 pandemic and Russia's invasion of Ukraine.
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Einar H. Dyvik
Research expert covering Nordics and global data for society, economy, and politics