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What are leading indicators (and what do they predict will happen to the economy)

Clues about the future. That is what leading indicators of the economy offer.

They are vital because they allow governments, companies and even families to anticipate what is going to happen and act accordingly.

An example: until you do nothing, a bottleneck in shipping has been indicating how the economy was reviving after the covid-19 pandemic and the lockdowns suffered.

After months of closure, companies and consumers threw themselves to buy. Hence the need to ship goods from one side of the world to the other.

That global problem had a reading for economists: the recovery was too strong, almost too strong.

So much that it provoked a series of imbalances.

The advanced ones are indices different from the more conventional data of an economy such as The producto Interior Bruto (Start), which tells us how a country grew, the level of unemployment, or the inflation it suffers.

“The classic indicators refer to the past: GDP tells us how much an economy has grown in the last quarter or in the last year. But they are still a summary of what has already happened“, explains Víctor Alvargonzález, of Nextep, an independent financial advisory service.

“But in economics it is very important to see what is going to happen and to know if it is possible to get ahead of yourself. And that is where leading indicators come into play. They are key for investors and economists who have to plan and analyze the business cycle“, Add.

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