SIE Ready📈 Economic Factors · Lesson 4 of 5 · 6 min
Leading, Coincident, Lagging
🔮 Some numbers predict the economy, some describe it right now and some only confirm what already happened. The SIE wants you to sort them.
💡 Key idea
Permits and stock prices lead; payrolls and industrial production coincide; unemployment duration and the prime rate lag.
🧠 Why it matters
LEADING indicators change BEFORE the economy: building permits, stock prices (S&P 500), manufacturing weekly hours, initial jobless claims, new orders, consumer expectations, the 10-year-minus-fed-funds spread. COINCIDENT move WITH it: nonfarm payrolls, industrial production, personal income, manufacturing and trade sales. LAGGING confirm AFTER: average duration of unemployment, average prime rate, commercial loans outstanding, labor cost per unit, consumer credit to income. GDP measures output produced inside U.S. borders; GNP measures output by U.S. residents and companies wherever located. The CPI (published by the BLS) tracks prices of a basket of consumer goods. INFLATION = rising prices; DEFLATION = falling prices; STAGFLATION = high inflation with slow growth and high unemployment.
📈 In the real world
Asha, a rep studying for her exam, makes a rule: 'Leaders are plans, coincident is paychecks, laggers are leftovers.' Building permits are plans to build. Payroll counts are this month's paychecks. How long people stay unemployed, and the debts still on the books, are leftovers from the last turn.
📌 Takeaways
- Leading: building permits, stock prices, jobless claims, new orders
- Coincident: payrolls, industrial production, personal income
- Lagging: duration of unemployment, prime rate, CPI for services; GDP = output inside the U.S.
📖 Terms in this lesson
Gross domestic product (GDP): The total value of final goods and services produced within a country during a period.
Consumer Price Index (CPI): A measure of changes in the prices consumers pay for a basket of goods and services, the most watched inflation gauge.
Leading indicator: A statistic that tends to turn before the overall economy does, such as building permits, stock prices or new manufacturing orders.
Stagflation: Slow growth and high unemployment occurring together with rising prices.
✅ Test yourself
Which is a leading economic indicator?
- Average duration of unemployment
- Average prime rate
- Building permits for new homes
- Industrial production
Answer: C · Building permits for new homes
Permits signal construction that has not started yet, so they lead. Industrial production is coincident, while unemployment duration and the prime rate are lagging indicators.
Rising prices combined with slow economic growth and high unemployment is called:
- Expansion
- Deflation
- Stagflation
- Disinflation
Answer: C · Stagflation
Stagflation pairs inflation with stagnation. Deflation is falling prices, disinflation is a slowing rate of inflation, and expansion is a period of growth.
Gross domestic product (GDP) measures the value of goods and services produced:
- Only by the manufacturing sector
- Only by government agencies
- Within the country's borders
- By U.S. companies worldwide
Answer: C · Within the country's borders
GDP counts output inside U.S. borders regardless of who owns the producer. Output by U.S. residents and companies wherever located is GNP. GDP covers all sectors, not just manufacturing or government.
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