Leading Indicators
Economic data points that tend to change before the broader economy shifts, used to predict future conditions.
What is Leading Indicators?
Leading indicators are economic statistics that tend to move before the overall economy, providing advance warning of future economic trends. They 'lead' the economic cycle by weeks or months, giving policymakers, investors, and businesses a preview of what may be coming. Common leading indicators include: new orders for manufactured goods, building permits, stock market returns, the yield curve spread, initial unemployment claims, consumer confidence, and the ISM manufacturing index. The Conference Board's Composite Index of Leading Economic Indicators (LEI) aggregates 10 components into a single index widely used to forecast US economic direction. By contrast, lagging indicators confirm trends after they occur.
Example
In 2022–2023, the Conference Board's LEI declined for 18 consecutive months — the longest streak since 2008 — as building permits fell, consumer confidence dropped, and the yield curve inverted. The sustained decline pointed toward recession risk, though the widely forecast recession had not materialized as of mid-2024, highlighting the limits of leading indicators as precise predictors.