Leading Indicators

Leading indicators are used to predict future trends of economic activity. Some leading indicators that can be used are:

• Share market movements

• Building approvals

• Loan approvals

• Household confidence surveys

• Business confidence surveys

• Purchasing Managers Index

Co-Incident Indicators

Co-incident indicators are used to show current trends in economic activity. Some co-incident indicators that can be used are:

• Retail sales

• Unemployment rate

• Participation rate

• Cash Rate

Lagging Indicators

Lagging indicators are used to confirm past trends of economic activity. They are usually more reliable in nature.

Some lagging indicators include:

• Gross Domestic Product

• Inflation rate

• Average Weekly Earnings

• Balance on the Current Account

Was the GFC a Trough?

We can use leading, co-incident, and lagging indicators to confirm the GFC was a trough. Indicators provide evidence of past phases of the business cycle and predict future phases.

The GFC was a trough phase of the business cycle, evident by the following indicators:

Leading Indicators

• Share market crash

• Building approvals fell from 11.2% (Nov 2007) to -31.7% (Jan 2009)

Co-Incident Indicators

• Cash rate eased from a peak of 7.25% to a low of 3%

Lagging Indicators

• Annual GDP growth fell from 4.3% (Sep. 2007) to 0.3% (Dec 2008)

• Inflation rate fell from 5% (Sep 2008) to 1.3% (Sep 2009)

• From these indicators, it can be shown that a trough occurred during 2009.