Explain the difference between leading, coincident, and lagging indicators in economic statistics.

Explain the difference between leading, coincident, and lagging indicators in economic statistics.

Answer:

Economic indicators are used to predict, confirm, and analyze economic cycles. They are broadly divided into leading, coincident, and lagging indicators.

1. Leading Indicators:

   • These change before the economy as a whole starts to follow a particular trend.

   • Used to predict future economic activity.

   • Examples: Stock market trends, new business registrations, housing permits, money supply growth.

2. Coincident Indicators:

   • These move in line with overall economic activity.

   • They represent the current state of the economy.

   • Examples: Industrial production, employment levels, retail sales.

3. Lagging Indicators:

   • These change after the economy has already begun to follow a trend.

   • Used to confirm patterns.

   • Examples: Unemployment rate, inflation (CPI/WPI), interest rates.

👉 In summary:

• Leading = Predictive (what’s about to happen)

• Coincident = Current (what’s happening now)

• Lagging = Confirmatory (what has already happened)

Cross-question:

Give an example of each indicator relevant for Indian economy.

• Leading Indicator (India): Purchasing Managers’ Index (PMI) for manufacturing and services. A rise in PMI indicates future growth momentum.

• Coincident Indicator (India): Index of Industrial Production (IIP), which directly reflects current industrial output and economic activity.

• Lagging Indicator (India): Unemployment rate or Non-Performing Assets (NPAs) in banks. Both rise only after slowdown has already set in.

👉 Thus, by combining these three sets of indicators, policymakers and statisticians can form a comprehensive view of economic cycles.