Leading Indicator

  

Categories: Econ

See: Lagging Indicator.

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Finance: What are Lagging and Leading Ec...2 Views

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Finance Allah shmoop what are lagging and leading economic indicators

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Okay people Here's the economy kind of roller coaster ups

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and downs and well but it generally goes up overtime

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anyway More people more demand for toothpicks Ah bed sheets

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hair growth formula You know that one really worked more

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buyers of a one bedroom with a view of another

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one bedroom with a view of Well yeah Wall Street

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people and economists Yeah Those guys are always trying to

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figure out where we are in these roller coaster cycle

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ups and downs Are we here Are we here Are

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we here Yeah very Carmen Sandiego So a leading indicator

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is basically the canary in the mine shaft And if

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you don't know the term Pita stopped this But it

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used to be that miners would literally bring Canaris with

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them into mine shafts Because canaries if they live to

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tell the tale are extremely sensitive to gas Ah different

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gas when there would be any kind of harmful leak

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like from gas lanterns or from diesel engines or from

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fissures in the earth while the canary would die quickly

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or at least stop singing And then the miners would

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skied addle out of there So the canary was the

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leading indicator of a deadly gas leak and miners would

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follow it awful Investors are always anxious to figure out

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what leading indicators air saying about where the economy is

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going Investors kind of live two quarters in the future

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And if they believe we'll have a meaningful slowdown in

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the economy while they'll usually begin selling well ahead of

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them that is The economy or belief in economic growth

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is a leading indicator often of where the broader stock

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market is heading for the stock market generally anticipates the

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economy well One famous canary no longer really in use

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anymore are help wanted lines in the newspaper And yes

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once upon a time those things were on paper way

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before the founders of Glass Door indeed and the others

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were even well invented are born so help wanted lines

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were a leading indicator of the economy If they were

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shrinking the economy was likely to be softening as demand

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for incremental new hires was dissipating And I went the

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other way too So today we look more often it

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things like bond yields albeit with skepticism because the Fed

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can raise and lower bond rates for a variety of

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reasons defending the dollar internationally like they'd raise rates to

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do that or with political back pressure well they might

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lower them to give the stock market a chance TTO

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walked upwards ahead of an election Lower rates mean lower

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bond yields thus making things like equity Dividends are much

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more attractive means of raising cash to you know pay

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the rent Well new housing starts for another big leading

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indicator volatile space But if the smart people of the

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world are green lighting loans for builders to build new

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homes well then a whole lot of people believe that

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the demand will be there for those homes when they're

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finished a year or two or three later Okay so

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those air leading indicators what are lagging ones And why

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would we even care about a lagging indicator like a

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lagging indicator of your death Is well worms eating your

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body And you really just not caring what lagging indicators

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really service a truth telling mechanism to see if we

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got our leading indicators right That is a lagging indicator

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might tell us that we've just finished a big economic

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boom and a really five quarters into a sort of

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soft recession as we see declines in profits from gate

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fees at Disneyland and Disneyworld And we might see unemployment

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rates going up at an active clip And we might

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see interest rates following with the governor hoping the stimulate

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economic activity again Well all of these indicators however only

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exist in a weird kind of vacuum because so many

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cities and even states really have their own financial ecosystem

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Economically speaking right Well the planet called Silicon Valley over

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the last couple of decades has generally grown like a

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bamboo chute on hot sweaty days with only blips of

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economic cyclicality Other areas like Detroit and Central Baltimore can't

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seem to grow no matter how much stimulus the feds

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apply The key takeaway as with any economic indicator is

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that real investor type Wall Street people really don't care

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all that much about what theater economy is doing when

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they put money to work for their clients And after

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all while those economists were PhDs need at least something

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to do with their time So you know why not 00:04:10.769 --> [endTime] opine on lagging and leading economic indicators Oh

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