Leads And Lags

  

Categories: Financial Theory, Econ

See: Leading Indicator. See: Lagging Indicator.

Related or Semi-related Video

Finance: What is a Coincident Indicator?0 Views

00:00

Finance Allah Shmoop what is a coincident indicator It's our

00:08

coincident indicator Zahra Siri's of measures taken from different sectors

00:13

or areas of a system that taken as a whole

00:16

show What's currently going on in that system Like what's

00:19

coincidence What's happening at the same time I think of

00:22

them as displays on your fitbit that air telling you

00:25

your heart rate respiration blood pressure and oxygen level right

00:29

now like when you're ten minutes into your thirty minute

00:32

run or painting So let's say that as you're walking

00:35

into the living room from the kitchen you just realize

00:37

your sock is suddenly wet and cold and that there's

00:39

a strange smell that vaguely resembles cat food but could

00:43

be something way worse And you see the cats linking

00:46

behind the couch as if she did something wrong You

00:49

know we're looking at you Todd These air all coincident

00:52

indicators Riel Time up to the minute information from a

00:54

variety of sources that point to an increased trend in

00:57

the cat you know blowing chunks In the world of

01:00

finance there are three different sets of indicators that economists

01:03

look at to get different perspectives on the economy and

01:05

to help understand the ebbs and flows of doe Lagging

01:09

indicators are measures that on ly change after something has

01:12

shifted in the economy There like the pain message our

01:15

brain sends when we grab a hot pan We've already

01:18

grabbed the pan and gotten the burn and our brain

01:20

is now a second later Just letting us know it's

01:23

not pleased Outside of the business world a batting average

01:26

for a baseball player is an example of a lagging

01:28

indicator as it can only be calculated after the player

01:31

has completed an at bat But it may reveal a

01:34

pattern in his overall performance at the plate that leads

01:37

to future salary negotiations Right Well unemployment rates are commonly

01:42

used Lagging indicator Typically unemployment rates shift after something like

01:46

a multinational corporation undergoing massive downsizing profits or another after

01:51

the fact type of measure often cited as a lagging

01:54

indicator leading indicators or measures that we hope will predict

01:58

an upcoming pattern or change in the economy Something like

02:01

the Consumer Confidence index Yeah how about that Well the

02:04

CC I measures how confident we consumers feel about buying

02:07

stuff and the data can be used to help predict

02:10

where and how our money might be spent but more

02:12

simply the performance of the stock market One portion of

02:15

the economy tends to lead or predict the performance of

02:18

the economy Overall when the stock market swells the economy

02:21

tends to follow that trend just a little later than

02:24

the stock market swell And then we have coincident indicators

02:28

like our fitbit on the current state of the economy

02:30

Yeah or a live security feed showing us what's going

02:33

on in the break room right this instant and we

02:36

see you can't So what kinds of measures Air considered

02:39

coincident indicators While the gross domestic product numbers or GDP

02:43

is a big one the GDP is the sum of

02:45

the value of all goods and services produced in a

02:46

country over a set time period like quarterly or yearly

02:50

or the big to Canada You know that huge country

02:52

north of the U S Had a GDP of one

02:54

point six five trillion dollars in two thousand seventeen and

02:58

a GDP of one point five four trillion in two

03:01

thousand sixteen As a snapshot of where Aki Canada is

03:04

right now in terms of producing stuff and offering services

03:07

we can see that their GDP went up a tad

03:10

over And what is that About one hundred billion dollars

03:13

in a year on a smaller scale Production figures by

03:16

week month year etcetera for various industries like Steal tech

03:20

agriculture and so on again how much are they producing

03:23

right now Retail sales for the week month year even

03:26

day Yet those tell us what's going on right now

03:28

like Amazon tracks all that stuff to the hour So

03:31

yeah coincident indicators All for sure There are scads of

03:34

other coincident indicators like personal income data payroll data revenue

03:38

data unemployment rates and average hours worked in different sectors

03:42

And housing starts stuff like that Some agencies like Federal

03:46

Reserve We'll pop a whole mess of coincident indicators together

03:49

into an index to given even larger snapshot of what's

03:52

happening right now around the world In the economy personal

03:55

income data could be things like average income based on

03:57

a family size or average income of workers in different

04:00

industries like manufacturing are mining or services Payroll data could

04:04

include a company publishing its total payroll for all its

04:07

employees as a whole as well as its pay two

04:09

different sectors like workers on the front lines middle management

04:13

and upper tie wearing management Knowing how much companies are

04:17

paying their workers lets us peek at how many people

04:19

are making a living or non living wage Well unemployment

04:23

race which are also considered lagging indicators can offer a

04:26

real time assessment of how many people are actually working

04:29

right now compared to some other time right So if

04:31

the unemployment rate is something insane like twenty two percent

04:34

like hello Spain Portugal we're looking at you We know

04:37

there's a massive problem with the economy right now in

04:41

addition to knowing that something must have happened in the

04:43

past to lead to such a bad crisis Well think

04:46

of this Is your fitbit also displaying a real time

04:49

caloric intake vitamin level body temp hunger level and thirst

04:52

level in addition to all the stuff it already does

04:55

Yeah well there's also that composite index of coincident indicators

04:59

published by the Conference Board The number of employees on

05:02

nonagricultural Hey rolls measures well the number of employees not

05:05

working in agriculture manufacturing service and so on Basically it's

05:09

how many people are employed making stuff and helping people

05:12

but not growing stuff Index of industrial production measures Well

05:16

you guessed it Stuff produced in manufacturing mining and utilities

05:19

and yes level of sales in manufacturing in trade is

05:22

the total sales of stuff that gets sold crazy right

05:25

Right Zip it ken And aggregate personal income is the

05:29

total amount of money people make Taken together these four

05:32

coincident indicators provide a pretty comprehensive snapshot of where the

05:35

economy is at any given moment Well the big takeaway

05:38

is that the data are supposed to be real time

05:40

right now this very minute day week month or year

05:43

They're supposed to tell us what's happening right now They're

05:46

coincident Coincident indicators are nothing more than a fitbit for

05:50

the economy to tell us when the heart rate is

05:52

too high or too low Or uh you know when

05:54

Ken tries to sneak out early on a Friday Oh

Up Next

Finance: What is the Super Bowl Indicator?
1 Views

What is the Super Bowl Indicator? Back in the late 1970s, a NY Times Sportswriter attempted to make a correlation between whether an NFC or AFC tea...

Find other enlightening terms in Shmoop Finance Genius Bar(f)