Level 1 CFA® Exam:
Economic Indicators

In this lesson, we will discuss economic indicators.

Economic indicators help us evaluate the state of the economy. We can assess the current, past, and future state of the economy, that is why we can distinguish between 3 groups of economic indicators. These are:

• leading indicators,
• lagging indicators, and
• coincident indicators.

Leading indicators are used to predict an economy’s future state.

Lagging indicators help us analyze the past condition of an economy.

Coincident indicators show us the current activity of an economy, such as the dynamics of industrial production.

You should know that the number of economic indicators is huge and differs for different countries. What is more very often indicators from a given group are aggregated into one composite indicator. For example, in the USA we have:

• the Index of Leading Economic Indicators that consists of 10 leading indicators,
• the Index of Lagging Economic Indicators that consists of 7 lagging indicators, and
• the Index of Coincidence Economic Indicators that consists of 4 coincidence indicators.

All these 3 composite indicators are provided by the organization called the Conference Board which includes over 1000 corporations and organizations from all over the world.

Now, what is the motivation for creating a composite indicator? First of all, it is easier to follow one composite indicator, than for example 10 single indicators. Secondly, it can be misleading to use only a few indicators. And thirdly, not all indicators carry the same weight. That is why it is important to know the aggregate result of a given group of indicators.

Let’s have a look at 7 lagging indicators that are contained in the Index of Lagging Economic Indicators in the US. These are:

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