what is a leading indicator 
a leading indicator is a measurable set of data that may help to forecast future economic activity leading economic indicators can be used to predict changes in the economy before the economy begins to shift in a particular direction they have the potential to be useful for businesses investors and policy makers leading indicators are one of three main types of indicators the other two are lagging indicators and coincident indicators investopedia julie bangunderstanding leading indicatorsleading indicators must be measurable to be useful as predictors of where the economy may be headed policy makers and central bankers use leading indicators when setting fiscal or monetary policy 1 businesses study them to anticipate the effect of future economic conditions and then make strategic decisions regarding markets and revenue all businesses track their own bottom lines and balance sheets but such data are lagging indicators meaning they re produced by events that have already happened importantly a business past performance does not necessarily indicate how it will do in the future investors use leading indicators to guide their investment strategies as they try to anticipate market conditions many focus on those indicators directly related to the stock market these can include the housing market retail sales building permits business startups and more examples of leading indicatorseconomists closely watch the purchasing managers index pmi the pmi reflects trends in the manufacturing and service sectors and can be a useful signal of growth in a nation s gross domestic product gdp due to changes in the demand for materials from corporations 2durable goods orders is a monthly survey of manufacturers that is produced by the u s census bureau it measures industrial activity in the durable goods sector and the state of the supply chain 3along with durable goods orders many people consider the consumer confidence index cci to be one of the most accurate leading indicators this index surveys consumers about their attitudes toward the economy and their perceptions of economic activity going forward 4the u s department of labor provides a weekly report on the number of jobless claims as an indicator of the economy s health 5 a rise in jobless claims indicates a weakening economy which could have a negative effect on the stock market a drop in jobless claims may indicate that companies are growing and hiring which can be positive for the stock market many market participants consider the yield curve to be a leading indicator of particular interest is the spread between two year and 10 year treasury yields this is because two year yields in excess of 10 year yields have been correlated to both recession and short term market volatility if such an inverted yield curve occurs it may signal that a recession is approaching 6while not a metric issued by economists or government agencies customer complaints or negative online reviews can be seen as a leading indicator of customer dissatisfaction that may signal problems with a business product quality or service failures these can point to lower future revenue growth or profits conversely positive customer satisfaction data may suggest that these factors will trend upward in the future leading indicators often present tradeoffs among accuracy precision and lead time in predicting future events accuracy of leading indicators and how to use themleading indicators are not always accurate however looking at several leading indicators in conjunction with other types of data may provide actionable information about the future health of an economy an ideal leading indicator would predict changes in economic trends or business performance accurately within a narrow range of estimates and over a major time horizon however in practice all leading indicators show variable performance along these lines for example the advance warning of economic downturns provided by capital goods new orders data can offer a long lead time for action however the historical lead time between turning points in capital goods and a specific target indicator such as changing stock prices or gdp may range from 12 to 24 months you end up with data indicating a long lead time for action but low precision about when to take it 