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When some people think of the economic calendar, they think of events, stocks, forex, and commodity markets. However, there are less obvious aspects of the economic calendar that are crucial to traders and financial investors because of their impact on the market and the value of relevant financial assets. One of them is what is referred to as economic indicators – measurements or statistics used to understand economic activities.
According to futurist economist Jason Schenker, each economic indicator can influence the global economy, finances, and daily life. Jason believes that it is important for everyone to know how to find and interpret this data. This article highlights three key indicators of the economic calendar and their impact on the market.
Coincident Indicators
The coincident indicator tells us about the economy’s current status because they change simultaneously with economic conditions. Some common examples of coincident indicators found on the economic calendar include; retail sales, industrial production, employment levels, GDP, and personal income. The economic calendar shows these indicators as global events and updates. Users can filter these events by country or importance, tracking forecasts and trading news.
Coincident indicators are essential in signaling turning points in the economy and the different phases of the business cycle (expansion, peak, recession, depression, trough, recovery). This economic indicator is often useful to economists and policymakers during decision-making but less helpful to investors.
These indicators are useful to economists and policymakers because they show real-time data about present occurrences, and only experts who can use current situations to predict or forecast future events will find them useful. Typically, four indicators form the Coincident Economic Activity Index. They include Employees on nonagricultural payrolls, Personalincomelesss transfer payments, Industrial production and manufacturing, and trade sales.
Leading Indicators
As the name implies, leading indicators usually come before the related economic changes become evident. For this reason, they are particularly interesting to investors because they can be used as short-term forecasters of the economy. Leading indicators include stock prices, yield curves, net business formations, index of consumer expectations, changes in manufacturing activities, etc.
Leading indicators are most valuable when they can be measured. In 2019, a senior associate economist in the Federal Reserve Bank Chicago’s economic research department analysed various leading indicators. He aimed to discover which leading indicators most effectively signal past U.S. recessions. His analysis showed that indexes that combined several macroeconomic measures have historically done better than other indicators at signalling expansions and recessions up to one year in advance.
Lagging Indicators
Unlike leading indicators, lagging indicators are metrics that can confirm economic changes rather than predict them. Lagging indicators often show up a few quarters after the economy has recorded changes or shifts. According to the Conference Board, the Lagging economic index for the U.S. experienced an increase of 0.2 percent in February but fell by 0.2 percent in March 2023 to 118.3. Nevertheless, when measured over 6 months (from September 2022 to March 2023), the LAG is up by 1.1 percent. This six months record, however, is less than the previous six months’ growth rate of 4.4 percent.
Some common examples of lagging indicator indexes, as stipulated by the conference board, include; average unemployment duration, Inventories to sales ratio, trade and manufacturing, cost of labor per unit of output, average prime rate, industrial and commercial loans, consumer installment credit to personal income ratio, and the Consumer price index for services.
Making the Most of Key Economic Indicators
These economic indicators are valuable tools used for analysis and decision-making. However, they may sometimes make inaccurate suggestions, leading to wrong financial and economic predictions. Therefore, conducting thorough research, analysis, and inquiry is advisable before using them as benchmarks for financial, business, or personal decision-making.
