Leading Indicator
Candlefocus EditorOne of the most widely used leading indicators is the Index of Consumer Confidence. This measures people's outlook on the economy, including their willingness to make big purchases, investments, or other economic commitments. Higher readings of the index are signals of confidence in the economy, and thus economic expansion, while lower readings indicate weakness in the economy and generally lead to a slow down in economic activity.
The Purchasing Managers’ Index (PMI) is another important leading indicator. It measures the level of manufacturing activity in the economy and is often used to learn more about the overall health of the economy. The PMI is a composite of all the data points about manufacturing activity including production levels, inventory, new orders, supplier deliveries, and prices. Generally, higher levels of the PMI are seen as a sign of economic expansion.
The U.S. Department of Labor's initial jobless claims report is also a closely watched leading indicator. This report measures the number or initial claims for unemployment insurance that are filed each week. High levels of jobless claims are generally seen to indicate weakness in the labor market and upcoming slowdowns in the economy.
Another popular leading indicator is the average hours worked report, which measures the average number of hours worked by individual workers. Higher levels of average hours worked are generally seen to be a sign of economic expansion, while a decrease in average hours is seen as a sign of an economic slowdown.
Leading indicators can be an invaluable tool in helping to forecast future economic movement or changes. However, they are not always accurate and should be used alongside other measures of the economy. It is important to consult a range of leading indicators when trying to forecast future events, as different indicators may provide different signals.