Leading economic indicator is a set of economic indicators whose movement precedes overall economic activity. Economists use it to predict the economy’s future state, usually near-term.
Examples are money supply and broad stock markets indices, such as the FTSE Index, the S&P 500 Index, and the Hang Seng Index.
Leading indicators are seen as useful predictive tools to know how an economy may change shortly. It becomes valuable inputs in the economic policy formulation, like when to raise interest rates. Business monitors it to make decisions regarding capital investment. Investors use it in decisions for future portfolio allocation.
The compositions of leading economic indicator
Components of leading economic indicators vary among countries, depends on the institution that releases it, types of data available, and the methodology used.
The United States, released by The Conference Board:
- Average weekly hours in manufacturing
- Average weekly initial claims for unemployment insurance
- Manufacturers’ new orders, consumer goods, and materials
- ISM new order index
- Manufacturers’ new orders, non-defense capital goods excl. aircraft
- Building permits, new private housing units
- Stock prices, 500 common stocks
- Leading Credit Index
- Interest rate spread, 10-year Treasury bonds less federal funds
- Average consumer expectations for economic and business conditions
The United States by Federal Reserve Bank of Philadelphia
- Housing permits
- Unemployment insurance claims
- Delivery times of the Institute for Supply Management (ISM) manufacturing survey,
- The yield spread of the 3-month Treasury bill and the 10-year Treasury bond.
Indonesia, by OECD
- IDX composite index
- Central Bank Discount rate
- IDR/USD exchange rate end period
- Wholesale Price Index
- Consumer Confidence indicator
- Production of paper and paper products
- Tourist arrivals