South-Western College Publishing - Economics  
Leading? Lagging? Coincidental?
Subject Economic indicator fluctuations
Topic Productivity and Growth
Key Words Economic Indicators, Index of Leading Indicators, Index of Coincident Indicators, Index of Lagging Indicators
News Story

The Conference Board reported that the index of leading indicators, a measure that is used to predict economic performance, fell in August for the first time in four months, and only the second time in the past 11 months. The index of coincident indicators, a measure of current economic activity, rose 0.2 percent in August, an increase equal to the July figure. The index of lagging indicators, used to evaluate past measures of economic performance, also increased 0.2 percent. Economists had anticipated the decline in the index of leading indicators. They believe that the decline is temporary and does not signal an interruption of economic growth.

The index of leading indicators is designed to forecast economic activity in the next three to six months. The trend based upon the last few months of the index indicates that economic growth will continue through the rest of this year and into 2000. Economists dismiss the downturn in the index as a temporary deviation. May, June and July figures were especially strong, and a slight dip could be expected.

The index of leading indicators comprises ten component indices to. These include average workweek, unemployment claims, orders for consumer goods, slower deliveries, plant and equipment orders, building permits, interest-rate spread, stock prices, money supply and an index of consumer expectations. Five of these ten components fell in August and five rose.

(Updated November 1, 1999)

Questions
1. Why is it important to policy makers to have an accurate prediction of the future direction of the economy?
2. What is a recession? How is a recession officially defined?
3. What is a business cycle? What are the components of the cycle?
Source Tristan Mabry, "Leading Indicators Slipped in August," The Wall Street Journal, October 6, 1999.

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