The method behind using statistical indicators is to find economic series that consistently lead, coincide, or lag turns in business activity. The leading indicators can be used forecast turning points in the cycle. The coincident indicators define the turning points; the lagging indicators confirm cyclical turns in business activity.
In Part One, we described our 12 Leading Indicators. In this second installment of a four-part series created for the web, we describe our 6 Coincident and 6 Lagging Indicators. As with our Leading Indicators, all dollar-denominated series are adjusted for price inflation.
Nonagricultural employment.The number of persons on the payrolls of all establishments, except agriculture. Labor is used in the production of goods and services and employment is the main source of household income and purchasing power.
Index of industrial production. The physical volume of goods produced by the manufacturing, mining, and electric utility sectors. Although the industries covered account for about 25 percent of GDP, they account for the bulk of the volatile movements in business activity.
Personal income less transfer payments. Derived by subtracting transfer payments, which are often counter cyclical, from total personal income. Personal income is the main component of consumer purchasing power. Personal income includes compensation for labor, proprietors’ income, rental income, and income from interest and dividends. Transfer payments include government payments for programs such as Social Security and Medicaid.
Manufacturing and trade sales. The aggregate value of sales by the manufacturing, wholesale, and retail trade sectors of the economy.
Ratio of civilian employment to population. The number of persons 16 years of age or older who are employed in the nonfarm sector divided by the total non-institutional population 16 years of age or older. A rising ratio may indicate tightness in the labor market.
Gross Domestic Product. The market value of all final goods and services produced within the nation’s borders. This is the broadest measure of economic output, spending, and income.
Average duration of unemployment. The average number of weeks that unemployed persons have been looking for work. This is an indication of tightness in the labor market. Changes in this series are inversely related to business fluctuations. The series is inverted for analysis.
Manufacturing and trade inventories.
The aggregate dollar book value of inventories of materials, goods in process, and finished goods stocked by the manufacturing, wholesale, and retail sectors of the economy. It peaks after the economy begins to slow, as sales fall short of projections.
Commercial and industrial loans. The amount of short-term business loans and commercial paper issued. Declining profits usually increase the demand for loans.
Ratio of consumer debt to personal income.
The credit used to finance personal consumption (excluding home mortgages and home equity loans) relative to the aggregate value of incomes received by individuals, unincorporated businesses, and nonprofit institutions. This ratio is an indication of the willingness and ability of consumers to incur debt in relation to their income.
Change in labor cost per unit of output, manufacturing. The relationship between the volume of production of manufactured goods and the cost of the labor involved in that production. Rising labor costs signal a squeeze on profits.
Composite of short-term interest rates.
The monthly average of the 30-day commercial paper rate and the 3-month Treasury bill rate. Rising interest rates suggest a developing credit squeeze.
In Part Three
, we will describe AIER’s methods of analysis.
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