In the previous article, we talk about economic indicators which could further divide into three categories: leading indicators, lagging indicators, and coincident indicators. Leading indicators considered predictors of economic trends as they often change before the economy as a whole change
The Conference Board, a US industry research organization, uses 10 leading indicators to form the Conference Board Leading Economic Index. We will talk about the five of the indicators today.
1.Average weekly hours, manufacturing
Working hours reflect the sentiment of economic activity. Companies generally decrease employees’ hours before layoffs and increasing staff hours before rehiring.
2.Average weekly initial claims for unemployment insurance
Since the data is released every Thursday, it reflects current status of the labor. If the number increases, it means the economy’s momentum is slowing down. This will also affect consumption, which further bring negative effect to economy. Conversely, the decrease of number implies the economic momentum is building up. This helps to increase consumer spending and promote the economy.
3.Manufacturers’ new orders for consumer goods and materials
As companies need to meet market demand as quickly as possible, and do not hoard too much goods, the indicator indirectly captures changes in economic sentiment.
4.ISM new order index
Usually, market demand falls before recessions. It reflects in new order number. The Institute of Supply Management conducts an industry survey every month to obtain the number of new orders. If the index level is above 50, it means an increase in the number of new orders compared to the previous month.
5.Manufacturers’ new orders for non-defense capital goods excluding aircraft
Like the ISM new order index, new orders is a tool to effectively measure the business cycle. This indicator excludes defense and aircraft orders to reduce the number’s volatility.
For the five indicators above, many of them are related to manufacturing. Critics says that since the manufacturing industry is no longer a major component of the United States economy, it is necessary to take other sectors’ factors into consideration in order to get the full picture of the economy.
We will talk about other five indicators in next article. Stay tuned.