Fundamental analysis

Leading And Lagging Economic Indicators

It doesn’t matter if you trade currencies, stocks, indices or any other financial instruments, it is important to first get a complete picture of the situation in the related country. In particular, it is necessary to understand what forces influence the national economy and what type of news you need to follow first.

Indicators (news) in the Economic Calendar usually fall into one of the categories below:

  • Leading indicators
  • Lagging indicators
  • Coincident indicators

Leading indicators

Indicators of this type help to make a forecast about future country’s economy changes. Any shifts in their values warn that we will soon see a similar negative (or positive) effect in other national sectors.

So you can predict, for example, the impending recession, as Central Banks representatives usually do: they determine in advance the vector of development and adjust the monetary policy by raising or lowering rates. The same data is used by private traders to adjust their strategies.

Leading and lagging economic indicators

Among the leading indicators are:

  • Building permits. The more permits are issued, the brighter the prospect of construction and other related areas. The growth of the indicator displays a future decrease in the Unemployment rate, as well as a rise in Home loans.
  • Consumer Confidence Index. In general, it shows whether people are ready to spend money this month or not. It also helps to determine the situation in the employment field and the economy overall, up to the production prospects.
  • Primary claims for unemployment benefits: more or less unemployed people were there in a certain period. In conclusion, it affects GDP, taxes, consumer prices etc.

Lagging indicators

Unlike leading indicators, they reflect changes that have already occurred in the economy over time. Traders use these indicators to confirm market trends strength. Since the economy has already begun to move in a certain direction, one can open medium-term and long-term trades along with a general trend.

  • Unemployment rate. Indicates how many people are unemployed in the country at the moment.
  • Consumer Price Index. Shows how the price of the consumer basket changes over time.
  • Trade Balance. It displays exported and imported goods value for a certain period.

Coincident Indicators

This type of indicators offers important information about the current economic situation. Coincident indicators can give traders a detailed breakdown of current market trends, allowing them to tailor a strategy to a developing trend.

  • Personal income. The individual income from all sources.
  • Retail sales. It reflects the sales volume changes in the retail sector.
  • Gross Domestic Product. The cost of all goods and services, produced in the country during the past year or quarter.