Conference Board

Conference Board

The Conference Board was founded more than 90 years ago in order to guide businesses toward better performance by providing research and information on a wide range of economical issues. It is a non-profit organization, and as such, holds tax exempt status in the United States.
In this text we’ll examine the three types of indicators released by the Board on a monthly basis. These indicators are divided into the three groups of leading, lagging, and coincident indicators based on the correspondence between their release data and the type of data covered by them. In addition to classifying the data released by the Board, the division is utilized by many other foundations and institutions in order to classify information.
Leading Indicators: Leading indicators provide information about the future direction of economic events. They are derived from the analysis of data with long-term impact, and they thus provide some insight to the future of economic developments. Of course, leading indicators only speak about probabilities. They are useful, but do not provide certain guidance about the future (if they did, trading would be so much simpler, after all).
There are many kinds of leading indicators that most people deal without even being aware of it. A very good example is the lending surveys conducted by the many central banks of the world. Since the amount of credit available in an economy has a direct bearing on the future of economic activity, and also because the impact is felt slowly over a long time, it is possible to predict the future growth performance of any economy on the basis of the lending policies of its banks. If, for example, banks contract credit for a significant period of time, it is usually clear that economic activity will shrink, and GDP will fall or stagnate. As such, bank lending statistics act as a kind of leading indicator for overall economic activity.
Another, even more obvious and stronger example would be the Federal Funds Rate. Since the Federal Funds Rate is the cost of the cheapest borrowing available in the economy, it has a powerful impact on the willingness of firms and consumers to borrow. Since borrowing usually leads to more investment and more spending, a better average GDP growth rate is the expected outcome over the longer term. As such, the Fed Rate can be regarded as another kind of leading indicator for overall economic activity.
By contrast, lagging indicators describe conditions that are anterior to the release data. A good example is the GDP report: it takes a long time to prepare the GDP report, and past GDP growth usually has little relationship to the future of economic activity in a nation. As such, the GDP report only provides a snapshot of economic situation as it existed in the past. The unemployment rate is another example: unemployment rates begin to fall a while after the economy has stabilized, and as such, they provide little value in terms of predicting the future. On the other hand, they can provide clues about the future of consumption, and can also be regarded as a leading indicator in that respect.
The third type of indicators are coincident indicators. These are usually timely snapshots of economic activity at the time they are released, and give important clues about the status of the economy as it stands, but do not provide a lot of insight into future developments. An example of this type of information is the retail sales data. This type of data usually reflects the perceptions of consumers about the present state of their finances, but does not say much about future economic activity.