SIE STUDENT | FINANCIAL REGULATION COURSES
Economic indicators are statistical measures published by government agencies, central banks, and research organisations that provide quantitative information about the current condition, recent history, and probable near-term direction of an economy's output, employment, prices, and credit conditions. They are the empirical foundation for Federal Reserve monetary policy decisions, congressional fiscal policy deliberations, corporate planning, and investment management, and they appear throughout the Series 65 examination curriculum in the context of macroeconomic analysis, business cycle assessment, and portfolio strategy.
Classification by Timing — The Three Categories
Every economic indicator can be classified by its timing relationship to the business cycle — whether it typically changes before the economy as a whole, at the same time, or after. This classification determines how the indicator is used in economic analysis and investment decision-making.
Leading indicators change before the broader economy does. They provide advance signals of future economic conditions — typically six to nine months ahead — and are therefore the most valuable for forecasting turning points and adjusting investment positioning before a phase change occurs. The Conference Board, a non-profit research organisation founded in 1916, publishes the Leading Economic Index for the United States, a composite of ten leading indicators designed to anticipate peaks and troughs in the business cycle. The ten components of the LEI are: average weekly hours in manufacturing, average weekly initial unemployment insurance claims, manufacturers' new orders for consumer goods and materials, the ISM new orders index, manufacturers' new orders for non-defence capital goods excluding aircraft, building permits for new private housing units, the S&P 500 stock price index, the Leading Credit Index, the interest rate spread between ten-year Treasury bonds and the federal funds rate, and average consumer expectations for business conditions from the University of Michigan Consumer Sentiment Survey.
Two of the most powerful individual leading indicators deserve particular attention. The yield curve spread — the difference between the ten-year Treasury yield and the federal funds rate or the two-year Treasury yield — has historically predicted recessions with remarkable reliability. When long-term yields fall below short-term rates, producing an inverted yield curve, it signals that markets expect the Federal Reserve to cut rates in response to a coming economic slowdown, and historically the United States economy has entered recession within six to eighteen months of a significant yield curve inversion. The equity market is also a leading indicator — stock prices reflect investors' forward-looking assessments of corporate earnings and economic conditions, typically peaking several months before NBER-dated economic peaks and troughing several months before NBER-dated troughs.
Coincident indicators change at approximately the same time as the overall economy, providing real-time information about its current state rather than predictions about its future direction. The Conference Board's Coincident Economic Index comprises four components: employees on non-agricultural payrolls, personal income less transfer payments, manufacturing and trade sales, and industrial production. These four series are virtually identical to the indicators the NBER's Business Cycle Dating Committee monitors most closely when identifying peaks and troughs — making the CEI the closest available real-time proxy for the NBER's assessment of current economic conditions. The CEI expanded by zero point three percent over the six months from September 2025 to March 2026, indicating continued economic growth during that period.
Lagging indicators change after the economy has already turned. They are not useful for forecasting but serve the important function of confirming that a turning point has occurred, preventing false signals from premature reactions to incomplete data. The Conference Board's Lagging Economic Index comprises seven components: the average prime rate charged by banks, the unemployment rate from the Bureau of Labor Statistics, the value of commercial and industrial loans outstanding, the change in labour costs per unit of output in manufacturing, the CPI for services less energy services, the ratio of manufacturing and trade inventories to sales, and the ratio of consumer credit outstanding to personal income.
The Direction Classification — Procyclic, Countercyclic, and Acyclical
In addition to their timing classification, economic indicators are also classified by their directional relationship to the economic cycle.
Procyclic indicators move in the same direction as the general economy — they rise during expansion and fall during contraction. Gross domestic product is the primary procyclic indicator. Corporate profits, retail sales, and industrial production are additional examples. Investors watching procyclic indicators to confirm economic expansion or contraction are using coincident or lagging data to understand where the economy has been.
Countercyclic indicators move in the opposite direction from the general economy. The unemployment rate is the most important countercyclic indicator — it falls during expansion as businesses hire and rises during contraction as they lay off workers. The countercyclic movement of unemployment is both economically intuitive and practically important: a falling unemployment rate during expansion signals strengthening labour market conditions, while a rising rate during contraction reflects the human cost of economic decline.
Acyclical indicators have no consistent relationship to the business cycle. Weather-related variables, certain agricultural output measures, and other data series that reflect factors independent of economic activity rather than responses to it are acyclical.
The Major Economic Indicators in Detail
Gross Domestic Product
Gross domestic product is the total market value of all final goods and services produced within a country's borders during a specified period, typically a calendar quarter or calendar year. The Bureau of Economic Analysis publishes GDP estimates quarterly, releasing an advance estimate approximately four weeks after the quarter ends, a second estimate at eight weeks, and a third estimate at twelve weeks, with subsequent annual benchmark revisions. Real GDP — adjusted for inflation to reflect changes in actual physical output rather than changes in prices — is the definitive measure of whether the economy is growing or shrinking. Real GDP for the fourth quarter of 2025 stood at twenty-four point one trillion dollars at an annualised rate.
GDP is classified as both a coincident indicator — it moves with the economy in real time — and as a lagging indicator by some analysts, because the quarterly publication schedule and revision process means that GDP data is always reporting on conditions from at least one to four months in the past. The GDP calculation uses the expenditure approach, summing consumer spending, business investment, government spending, and net exports: GDP equals C plus I plus G plus net exports.
Nonfarm Payroll Employment
The Bureau of Labor Statistics publishes the Employment Situation Summary on the first Friday of each month, reporting the change in nonfarm payroll employment for the prior month and the unemployment rate from the Current Population Survey. This report is one of the most closely watched economic data releases in United States financial markets, regularly producing sharp movements in equity prices, bond yields, and the dollar within seconds of its eight-thirty AM Eastern Time release.
Nonfarm payrolls measure the number of jobs added or lost across all non-agricultural sectors of the economy during the prior month. A positive reading indicates job creation and economic expansion. A negative reading indicates job losses consistent with contraction. The unemployment rate from the separate household survey measures the percentage of the civilian labour force that is actively seeking work but not currently employed. Because workers who have stopped looking for work are excluded from both the labour force and the unemployment count, the labour force participation rate — the percentage of the working-age population either employed or actively seeking employment — provides additional context for interpreting unemployment rate movements.
Consumer Price Index and Producer Price Index
The Consumer Price Index, published by the Bureau of Labor Statistics monthly, measures changes in the price level of a representative basket of goods and services purchased by urban consumers. As the entry on Consumer Price Index in this dictionary details, the CPI-U is the most widely cited inflation measure, used in the financial press and by most institutional investors, while the PCE price index is the Federal Reserve's preferred inflation measure for policy purposes. The CPI is generally classified as a lagging indicator because it reflects price changes that have already occurred across a fixed basket of goods based on prior spending patterns.
The Producer Price Index, also published by the Bureau of Labor Statistics, measures the average change in selling prices received by domestic producers for their output at the first commercial transaction — before those prices are passed through to consumers. Because input cost pressures often show up in producer prices before flowing through to consumer prices, the PPI is classified as a coincident to leading indicator for consumer inflation. Rising PPI readings frequently precede CPI increases by one to three months, giving analysts advance warning of potential consumer inflation pressure.
The ISM Manufacturing and Services Indices
The Institute for Supply Management publishes the Manufacturing Purchasing Managers Index on the first business day of each month and the Services PMI on the third business day, each reporting survey-based assessments of business conditions in their respective sectors for the prior month.
Both indices are constructed as diffusion indices: a reading above fifty indicates that more respondents reported improving conditions than deteriorating conditions, signalling expansion. A reading below fifty indicates the reverse, signalling contraction. A reading of exactly fifty indicates no net change. The ISM Manufacturing New Orders component is one of the ten components of the Conference Board's Leading Economic Index because new orders typically presage production activity by several weeks — manufacturers do not increase production until they have received orders to fill.
The ISM indices are closely watched by fixed income markets because they provide timely, forward-looking signals about economic conditions that can influence Federal Reserve policy expectations. A sharp drop in the ISM Manufacturing PMI into contraction territory — as occurred in early 2020 and during the 2015 to 2016 industrial slowdown — often prompts fixed income markets to price in a higher probability of Federal Reserve rate cuts.
Housing Starts and Building Permits
Housing starts — the number of new residential construction projects begun during the month — and building permits — the number of permits issued for future construction — are published monthly by the Census Bureau and are among the most reliable leading indicators of economic conditions six to twelve months in the future. Construction activity generates direct employment and income for workers in the construction trades, creates demand for building materials and appliances, and reflects the access to and cost of mortgage credit.
Building permits lead housing starts by approximately one to three months because permits must be obtained before construction can begin. Both measures are sensitive to mortgage interest rates — rising rates increase the cost of home financing and reduce the number of buyers who can qualify, suppressing demand for new construction. The Federal Reserve's aggressive rate-hiking cycle of 2022 to 2023, which raised the federal funds rate by five hundred and twenty-five basis points from near zero to five and a quarter to five and a half percent, produced a sharp reduction in housing starts and building permits as mortgage rates rose to their highest levels in over two decades.
Consumer Confidence and Consumer Sentiment
Two separate surveys measure consumer attitudes about economic conditions and their own financial circumstances, and both appear as components of leading indicator frameworks.
The Conference Board Consumer Confidence Index, published monthly, surveys five thousand households on their assessments of current business and labour market conditions and their expectations for conditions six months in the future. The present situation component functions as a coincident indicator while the expectations component functions as a leading indicator. Sustained declines in confidence typically precede reductions in consumer spending, which represents approximately seventy percent of United States GDP, making confidence surveys early warning signals for shifts in the economy's largest demand component.
The University of Michigan Consumer Sentiment Index surveys approximately five hundred consumers monthly on similar topics, with slightly different questionnaire wording and methodology. Both indices track each other closely over time and are used interchangeably in most economic analyses, though the Michigan survey includes a specific component on inflation expectations that is watched closely by Federal Reserve officials as a signal of whether long-term inflation expectations remain anchored at levels consistent with the two percent PCE target.
Economic Indicators and Federal Reserve Policy
The Federal Reserve does not follow a mechanical rule tying its policy decisions to any single economic indicator. Its dual mandate — maximum employment and price stability — requires it to balance labour market conditions against inflation pressures in setting the federal funds rate target. In practice, Federal Reserve policymakers monitor the full suite of leading, coincident, and lagging indicators to assess whether the economy is evolving as projected and whether the current policy stance remains appropriate.
The Federal Open Market Committee publishes its economic projections quarterly in the Summary of Economic Projections — commonly called the dot plot — showing each participant's projection for the appropriate federal funds rate at year-end for the current year and the following two years. These projections are themselves economic indicators, informing market participants about the likely future path of short-term interest rates and enabling financial markets to price longer-term instruments accordingly.
Examination Relevance and Key Takeaways
Economic indicators are tested on the SIE and Series 65 examinations in the context of business cycle analysis, leading versus lagging indicators, monetary policy, and the investment implications of specific data releases.
The core points to retain are these: economic indicators are classified by timing — leading indicators anticipate economic turning points six to nine months in advance, coincident indicators reflect current conditions, and lagging indicators confirm past turning points; the Conference Board publishes composite Leading, Coincident, and Lagging Economic Indexes with the LEI's ten components including average manufacturing hours, initial unemployment claims, building permits, S&P 500 index, and the ten-year to federal funds rate yield spread; gross domestic product is the total market value of all final goods and services produced within a country's borders, measured quarterly by the Bureau of Economic Analysis, and is the primary measure of economic expansion or contraction; nonfarm payroll employment from the Bureau of Labor Statistics monthly Employment Situation report is a coincident indicator and one of the most market-moving data releases; the unemployment rate is a countercyclic lagging indicator that rises during contraction and falls during expansion; the CPI is a lagging inflation measure while the PPI leads CPI by reflecting upstream price pressures before they reach consumers; the ISM Manufacturing and Services PMIs are diffusion indices where readings above fifty indicate expansion and below fifty indicate contraction, with the manufacturing new orders component a leading indicator of production activity; building permits lead housing starts and both lead broader economic activity because construction precedes the spending and employment it generates; and the Federal Reserve's dual mandate of maximum employment and price stability requires it to balance labour market and inflation indicators in setting monetary policy, with its quarterly Summary of Economic Projections providing forward guidance on the expected path of the federal funds rate.
