What is a Leading Economic Indicator and Why is it Important?

Often, investing terms can make you feel like you are lost in a maze of strange vocabulary. Today I thought I’d tackle one that people talk about on the news frequently.

Leading Economic Indicators

A leading economic indicator is a tracked measurement of economic activity. It’s called leading because these indicators can be used as a tool to help predict how the economy and markets may change in the future.

 

What is a Leading Economic Indicator and Why is it Important.

 

Credit: Niki Odolphie

Why are they important

Economists look at the trends of different leading indicators to see what industries are performing well or are in decline. Leading indicators are one of many precursors as to how the economy may react in the future.

Indicators include:

  • Building Permits

o   If more new houses are being built, people have money and feel confident in their current financial situation.

  • Unemployment claims

o   If unemployment goes down, more people have jobs.

  • Inventory changes

o   If inventories go down, that means that people are purchasing the goods

  • Average weekly hours, manufacturing

o   If weekly hours go up, that means the manufacturing plants have more orders to build

  •  Manufacturers’ new orders, consumer goods and materials

o   More new orders means more demand

  • Manufacturers’ new orders, nondefense capital goods excluding aircraft orders

o   More new orders from businesses means more manufacturing and industrial needs

  • Stock prices

o   Stock prices go up when consumer sentiment is high and earnings are good.

  •  Bankruptcies

o   If bankruptcies are down it means that less people are having financial issues

  • Retail Sales

o   People buy more retail items when they have more discretionary income

So the next time you hear a new report about the economy and they discuss leading indicators, you’ll have better idea of what they mean. Plus, you’ll look really smart at your next cocktail party!

How are you feeling about the economy at the moment?

 

Sharon L. Herman AAMS, ADPA is the CEO of Silver Key Wealth Management, and affiliated with LPL Financial.  www.silverkeywealth.com

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Silver Key Wealth Management, an independent investment advisor. Silver Key Wealth Management is separate entity from LPL financial.

Ms. Herman may only discuss and/or conduct transact securities business with residents of FL, MI, GA, NJ, VA, TX. www.finra.org. www.sipc.org

About Edgar DeJesus

Edgar DeJesus, a Husband first and foremost who shares his life with his loving wife Emily and their pet Charleston(chocolate American Cocker Spaniel). Fellow colleagues recognize him as one of the top mortgage planners in the Tampa Bay market and a fellow professional you can count on, his clients love him for being their trusted advisor. What keeps this hardworking mortgage planner going is his pure passion to deliver an extraordinary customer service experience. The question behind his motivation is simple – What differentiates him from every other real estate financing professional? He answers the question by saying: On every mortgage I provide for a client I treat it as if I were buying or building a home for my family, consolidating my debt, lowering my interest rate, or improving my own home. I deliver no less than I would expect if someone were providing me with a mortgage and most important their want & need is my want & need. He also says it is not just about providing mortgages, it’s about building life long lasting relationships. Some of his favorite hobbies are spending time with his family and friends, playing golf, dining at steakhouses, & fellowship with others.

Satisfaction for Edgar DeJesus comes from not only closing loans but rather opening doors. Receiving referrals from clients is a great compliment he can receive and the greatest compliment is to have clients repeat their loan experience with him. A great demonstration that he does not over promise and under deliver.

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