Throughout this post I’ll introduce some of these indicators & share my thoughts on others. While this list doesn’t encompass every leading or lagging indicator, it’ll highlight a bunch of ones I’ve ran across over the past few years. Also to note, I typically review the release of many of the reports related to these indicators via Econoday.

• Purchasing Managers Index (PMI) – Reported monthly based off data collected from purchasing executives from 300+ companies. Data collected includes order numbers, inventories, employment related numbers, and other order related numbers. Utilized to predict growth in GDP & could likely also be considered as a sentiment indicator (more or less) on how companies are thinking about short-term demand going forward.
• Durable Goods Report (DGR): Based on a monthly survey of heavy manufacturers.
  • Measures health of durable goods sector. More manufactured if expecting higher demand. Decreased manufacturing if declining demand expected.
• Consumer Confidence Index: Surveys consumers about their own perceptions of economy.
• Weekly Jobless Claims: “Meh” is how I generally feel about this number, but may hold some relevance if there’s accuracy in utilizing it to predict GDP numbers? “How many Q’s have notably increased GDP numbers (or GDP that beat expectations) w/ impressive decline in jobless claims week by week leading up to it? & vice versa.” as an example.
• Stock Market: can be argued to be a leading indicator, crashing just prior to recessions. I personally am just not convinced in the consistency of how much of a leading indicator it can be. Largely with a bunch of companies missing forecasts (revenue, I’d expect since it’s derived from demand), causing market to crash, then the Government catching up to the party & announcing there’s a recession, then everyone hearing it out loud & further pushing the market downward via selling out of their equity positions in favor of safer investments. Also, it’s worth noting that with the amount of Federal Reserve money that ends up in the market now indirectly, the market can stay afloat much longer than it would naturally. Additionally, when the Federal Reserve is undertaking quantitative tightening, it can cause the market to act weaker than it would naturally. Both of those scenarios indicating how this indicator could be ‘deceptive’ to a degree. In another post for a later date, I’ll dive into how stock market sentiment and valuations have related to economic cycles historically.
• Inventory Levels: Relevant in same degree as DGR. One could derive these numbers for consumer goods corporations in their earnings to see how their inventory levels compare to the past Q’s or Y/Y. Just off the top of my head, increased inventory levels now could indicate consumer demand is less than expected, indicating a tightening demand cycle & incoming recession. Furthermore, that could indicate retail sales & consumer confidence would both be down.
• Retail Sales: More specific than inventory levels, but could be influenced largely due to the Holiday season or similar “one-off” variables. Additionally, retail sales numbers don’t account for how the retail good or services are paid for. Hypothetically, these numbers could just be fueled and skewed by credit/debt.
• Building Permits & Construction metrics: Can be skewed (I’d assume) by the major influx of real estate investing we’ve seen come into the market over past 5-10 yrs. BUT would give relevance to construction jobs & forecasting of those jobs that the ADP employment report misses, seeing as the ADP employment report is largely limited to white collar jobs. Theoretically, an individual could combine the two (ADP employment report & Building Permits/Housing starts) to forecast if jobs are increasing or decreasing realistically rather than relying on the numbers the government releases each month (which could be skewed in the name of politics).
• Housing Market: While I think this one can be skewed, again since real estate investment demand can skew the demand side of the equation, boosting prices. I do think it holds relevance in that a peaking housing market could be an indicator of an incoming decreasing housing market (though at that point have we already hit the recession?) which would decrease homeowner wealth, reduce construction jobs going forward, reduce property taxes (not sure how relevant property taxes are in the grand scheme of gov revenue, but could be notable), and makes it so homeowners are unable to refinance or sell their houses. In looking at housing data, the focus here would be to look at changes in housing values & changes in sales.

Economic Lagging Indicators:

• Changes in GDP: Theoretically, this can be skewed due to the political trade war going on now for example, but if an individual were to use this as a real time metric, they could utilize the above metrics (leading indicators) to see how it correlates to projecting the change in GDP. This is one of the quarterly released numbers by the Government that I’ve noticed intra-day swings in the market because of. Additionally, if an individual could forecast this accurately and consistently based on the leading indicators above, it would give them somewhere to start in projecting/forecasting down to specific sectors or companies reported numbers.
• Income/Wages: to be honest, I understand how these SHOULD move, (when unemployment rate is low, it’s harder for companies to find good workers, so they’re forced to pay higher wages) but I’m under the speculation that corporations see employees almost entirely as a cost now days so we’re to see stagnant wage growth going forward, for a while. But I could be wrong (I hope I’m wrong).
• Unemployment Rate: Personally believe utilizing ADP employment numbers is more accurate & influenced less by bias or politics than government reported numbers are/can be. Worth noting that it’s important to also factor in the Participation Rate (& Total Labor Force, to ensure the Participation rate is accurately reported).
• CPI/Inflation Rate: High inflation reduces value of dollar. Not sure if it’s a correlation that is instantly reflected or not. But might be able to super-short-term forecast value of dollar based off these numbers. May also POSSIBLY be able to utilize these numbers to forecast probability of Fed raising rates.
• Strength of the Dollar: In contemplating the concept, I’m curious as to how well one could forecast import/export numbers based off of the oscillating value of the dollar throughout each quarter.
• Interest Rates: In the past, interest rates have been utilized as a tool for the Fed to reignite the economy when a recession hits. Conceptually, when the Fed lowers rates, spending increases substantially (who doesn’t love interest-free loans). Increased spending (demand) means companies make more money, meaning they need more employees to support that increased demand, leading to more people getting paid and then subsequently spending their new income and furthering the cycle. From my understanding, when previous recessions hit, the Fed was quick to drop Fed Funds Rates (which is the rate banks borrow Fed Reserve balances at and subsequently, commercial & retail interest rates are based off of) by 5% to fuel spending. Currently rates Fed Funds Rate is at 2.5%. So if a recession were to hit soon, they wouldn’t have that tool they leaned on the past few recessions. Will be interesting to see how things play out in the future.
• Corporate Profits: Another one that I understand the underlying concept, towards it’s relevance as a lagging indicator, but the fact that it can be so skewed by accounting tricks makes me skeptical on it as an accurate indicator. Better to utilize the “top line” (reported revenue) in my opinion.
• Gold/Silver/BTC?: Not sure if these could be considered a leading indicator or a lagging indicator, but surely their value MIGHT correlate to either incoming bad times as investors move outta the market & into those alternative investments. In that sense, one could utilize it as another investor sentiment measure. Or if those movements are too slow & so by the time their noticable, the market and economy is already in a decline? Could be interesting to look at. Compare Gold/Silver value charts to 2001, 2008, & 2015/16.

That wraps it up. If any readers want more insight into my thoughts or the importance of any specific indicators, want to bring any other indicators to my attention, or simply want to converse on any concepts outlined in this post, leave a comment below & I’ll offer up a response ASAP.

Until next time,