PEV Revision - Leading & Lagging Indicators

ckane4

Hi All,

I've just received a revision outline sheet from my college tutor which has a note to revise "Leading and Lagging Indicators" - can't find anything in the Osborne books or AAT website so am assuming it's a new subject that the tutors have been told to cover (and haven't!)...

Anyway, after googling, I've found the following article which I found helpful...

An indicator is anything that can be used to predict future financial or economic trends. For example, the social and economic statistics published by accredited sources such as U.S. government departments are indicators. Popular indicators include unemployment rates, housing starts, inflationary indexes and consumer confidence. Official indicators must meet certain set criteria; there are three categories of indicators, classified according to the types of predictions they make.

Leading - These types of indicators signal future events. Think of how the amber traffic light indicates the coming of the red light. In the world of finance, leading indicators work the same way but are less accurate than the street light. Bond yields are thought to be a good leading indicator of the stock market because bond traders anticipate and speculate trends in the economy (even though they aren't always right).

Lagging - A lagging indicator is one that follows an event. Back to our traffic light example: the amber light is a lagging indicator for the green light because amber trails green. The importance of a lagging indicator is its ability to confirm that a pattern is occurring or about to occur. Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy has been doing poorly.

Coincident - These indicators occur at approximately the same time as the conditions they signify. In our traffic light example, the green light would be a coincidental indicator of the associated pedestrian walk signal. Rather than predicting future events, these types of indicators change at the same time as the economy or stock market. Personal income is a coincidental indicator for the economy: high personal income rates will coincide with a strong economy.

Again, I'm assuming we may have to briefly outline them or something?! Think the idea of associating with traffic lights does help it to sink in!!!!!!

Good luck for Monday everyone! :thumbup:

Khurram Taj

Great

this is a great information, i did not know before.

Thanks

ckane4

No probs, I hadn't even heard the terms used before either! Great this last minute brand new information isn't it?!!!!!!

Pencil

Fantastic, thanks for that. Even it if doesn't come up in the exam it's a handy bit of info that makes you sound good in the office!:thumbup:

Karen L

Don't seem to have come across that terminology .. always something last minute !! Thank you for the info ... :001_smile: