The economy grows over time, but its growth is not at a constant rate. The level of economic activity fluctuates around the long-term growth trend in a cycle that repeats itself. No two cycles are exactly the same, but there are enough similarities that events in one phase can foretell the future. Tracking these cyclical economic indicators can help you better plan your business needs or investment performance.
Predicting with Economic Indicators
The Conference Board, a nonprofit research organization under contract with the U.S. government, tracks 10 leading economic indicators and compiles them into an index that it reports monthly. The number of people filing for unemployment for the first time is one leading indicator. If the number rises, it suggests that the economy is deteriorating and vice versa. The number of building permits is an accurate predictor of construction in future months. Consumer expectations can predict the future, since consumer spending constitutes about 70 percent of the gross domestic product. If people are confident in their jobs, their rising expectations leads them to spend more, and their confidence becomes a self-fulfilling prophecy. Manufacturing orders, stock market prices and interest rate changes are some of the other cyclical economic indicators that provide information about future trends. There are other indicators -- coincident and lagged -- which economists use to confirm the accuracy of the leading
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