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Leading Indicators Index

Definition: This index factors in 10 leading indicators, or economic indicators, that tend to change before the economy as a whole changes.

Description: The Leading Indicators Index provides an overview of the US economy, and is comprised of the following 10 components:

  1. The average hours worked per week by production workers in manufacturing industries.
  2. The average number of new claims filed for unemployment insurance per week.
  3. Manufacturers' new orders for consumer goods.
  4. The relative speed at which vendors can deliver orders to industrial companies.
  5. New orders received by manufacturers in non-defence capital goods.
  6. The number of residential building permits issued.
  7. The change in the stock market.
  8. The inflation-adjusted M2 money supply.
  9. The yield curve (the difference between long term and short term interest rates).
  10. The index of consumer expectations.

The Leading Indicators Index has a good track record of predicting dips in the US economy. As a rule of thumb, if the index drops three months in a row, a recession is likely to follow. From 1952 to 1998, the index predicted ten recessions in the US economy, of which seven actually occurred. The Leading Indicators Index can signal a change from economic growth to recession around ten months in advance, but is only able to predict a change from recession to growth 1-2 months in advance.

Influence: An increase in this index tends to boost the US dollar.

Market Impact: Low

Released: At the beginning of each month at 15:00 GMT

Source: The Conference Board (New York)


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