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Indicators of the Business Cycle

Economics (Year 12) - The Business Cycle

Christian Bien

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.

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