Leading Economic Indicator
A data series that tends to change before the broader economy does.
How it is identified
Test: the series historically turns ahead of GDP at business cycle turning points
Unit
qualitative
In depth
Common leading indicators include new orders, building permits, the yield curve slope, equity prices and consumer expectations, all of which reflect decisions taken now that produce activity later. They lead on average and not reliably in any individual instance, which is the distinction that matters — an indicator that has preceded seven of the last four downturns is not useful. Composite indices combining several series are more robust than any single one. Lagging indicators such as unemployment confirm what has already happened and are useless for anticipation but valuable for confirmation.
Worked example
New orders in a manufacturing survey falling for four consecutive months has often preceded weaker industrial production. The same signal has also occurred without a slowdown following, which is why it is one input rather than a forecast.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Leading Economic Indicator” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.