Economic indicators such as the unemployment rate comprise a large part of the business news. Understanding the main indicators and their relationship to the overall economy will aid in understanding both the current economic condition and the most likely future developments. It’s well worth the time investment to learn the main indicators and how they relate to the overall economy.

Let’s start with some general characteristics applicable to all indicators. Indicators can be classified according to their correlation to the economy and their time relationship to the economy.

• By Correlation, does the indicator move in step or opposite the direction of the overall economy
  • Positively correlated indicators are referred to as Procyclic
    • Example, growth of GDP
  • Negatively correlated indicators are called Countercyclic
    • Example, the Unemployment Rate
  • Indicators not correlated to the economy are Acyclic and are of limited use for predicting or confirming movement
• By Time relationship
  • Leading indicators change before the economy does
    • Example, the stock market is forward looking and more indicative of expectations about future economic conditions than present
  • Lagging indicators change later than the economic state
    • Example, unemployment tends to continue rising for some time after a recession ends and the economy is on the upswing.
  • Coincident indicators that move in step with the economy
    • Examples, GDP, Personal Income.

The Conference Board publishes indexes of indicators corresponding to each temporal relationship. These indexes are widely followed and studied and the same applies to the components comprising the indexes. I will confine this discussion to indicators that are part of the Conference Board indexes but you should be aware there are other less widely used or published indicators. Some are quite fanciful such as the hemline and super bowl indicators. At the time I write this the ‘Hot Waitress’ indicator is garnering much attention. This table presents the individual components of the leading, lagging and coincident indicator indexes.

The Conference Board publishes a guide to their indexes that makes good reading both from understanding the indexes and general economic knowledge at well. You can get a copy at http://www.conference-board.org/publications/describebook.cfm?id=852 .

In the second part of these posts we will start to look at the leading indicators in depth. I’ll be coming back to this post and updating links to the others so just keep this one marked and you will be able to follow the whole series as I get it done.

8/25, Changed the title to make clear this is only covering the indicators included by the Conference Board.