Differentiating between Coincident and Leading Indicators
Coincident indicators are economic factors that show direct, concurrent variations to the prevailing economic trends. These variations occur simultaneously and provide important information regarding the economic status of a business. Personal income and employment in formal sectors are some examples of coincident indicators.
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Leading indicators on the other hand are measurable economic factors that change before the overall economy undergoes some changes (Business Dictionary, 2011). Since these changes in economic factors precede major changes in the overall economic status, they are used in forecasting the overall economic status trends of a business. An increase in the price of raw materials is an example of a leading indicator. This increase can be used to predict an increase in the prices of products hence affecting the overall economic status of a business.
Importance of Business Cycle Indicators
Coincident indicators are important economic factors used to indicate the economic status of a business and predict its future trends. Leading indicators show the economic status at a specific period. Having good knowledge of the economic status of a business and possessing an idea of its future economic prospects is important in preparing for certain economic situations. This makes business cycle indicators important for indicating the economic status and predicting future economic trends (Tucker, 2009).
Examples of Leading Indicators
The housing market is an example of a leading indicator used to predict future trends in the economic status of a business. A remarkable development in the housing industry indicates that the overall economic status of a business is improving. When development in the sector slows down, it is an indication that the overall economic growth is not satisfactory (Hilderbrand, 1992). Another example of a leading indicator is the stock market. An increase in Stock market prices is a prediction of stable economic status in the future while a decrease in stock prices predicts unstable economic status in the future.
Business Dictionary. (2011). leading indicators. Web.
Hilderbrand, G. (1992). Business cycle indicators and measures: a complete guide to interpreting the key economic indicators. Michigan: The University of Michigan.
Tucker, I. (2009). Economics for today. Carolina: Thomson/South-Western.
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