Leading and Lagging Indicators

I thought I'd write a quick post about leading and lagging indicators in the economy. In My opinion the economy is well on it's way to recovery. I posted that we hit a stock bottom a few weeks back and since then the dow is up over 1100 points. Could it fall again? Sure, but recovery is well on it's way.

Leading Indicators
Leading indicators in this situation, indicators which turn up before the general economy, are home sales, the stock market, Index of supplier Deliveries, Interest rate spreads, new orders of consumer goods, real money supply, building permits, average weekly manufacturing hours, and new orders of consumer goods. What these indicators do is show an improving economy usually before the main economy has shown signs of this improvement. In the current economy, many of these are increase, such as money supply, building permits, and the stock market.

Lagging Indicators
Lagging Indicators are economic indicators which usually don't move until after the general economy has moved one way or the other. These include, unemployment rates, ratio of manufacturing and trade inventories, Commercial loans outstanding, Industrial loans,outstanding, The change in labor cost per unit of output, Change in the consumer price index for the service industry, and the average prime interest rate charged by banks. In evaluating an economy, after it's thought recovery, these lagging indicators can often confirm that the economy has in fact recovered.

Indicators are used by a variety of industries to predict the economic environment ahead, as well as compare past and present conditions. Although all the leading indicators have not turned positive, I am still sticking with the idea that we are heading for a recovery, and things will not get much worse, besides some of the lagging indicators which could persist 6 months or so after any recovery begins. This means that things like unemployment rate should start turning around by September or October of this year, while the stock market has already begun it's turnaround.