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October 23, 2018 

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BUSINESS CYCLE MEASUREMENT: Three of the most noted and often used measures of business cycle activity are real gross domestic product (especially the growth rate), unemployment rate, and inflation rate. Another group of measures fall under the broad heading of economic indicators and include leading economic indicators, coincident economic indicators, and lagging economic indicators. Real sophisticated economic types also follow measures such as changes in business inventories, Producer Price Index, M2 money supply, durable goods order, and others.

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COINCIDENT ECONOMIC INDICATORS:

Four economic statistics that tend to move up or down along WITH business-cycle expansions and contractions. Most importantly, these measures indicate peak and trough turning points when they actually occur. Coincident economic indicators are one of three groups of economic measures used to track business-cycle activity. The other two are leading economic indicators and lagging economic indicators.
Coincident economic indicators provide monthly tracking of business-cycle activity. They give consumers, business leaders, and policy makers an idea about where the economy is currently, right now. When the economy rises today, then coincident indicators are also rising right now. And when the economy declines today, then coincident indicators are also declining right now.

The actual measures used as coincident economic indicators are collected by different government agencies and private groups, including the Bureau of Labor Statistics and Bureau of Economic Analysis. These measures are then compiled by economists and number crunchers at the Conference Board.

Four Measures

The four coincident economic indicators that indicate the actual incidence of business-cycle peaks and troughs are: (1) the number of employees on nonagricultural payrolls, (2) industrial production, (3) real personal income (after subtracting transfer payments), and (4) real manufacturing and trade sales.

Each of these four individual indicators is useful in its own right, but when combined as a composite measure, even greater insight into the business-cycle activity is achieved.

How They Track

This exhibit can be used to illustrate how coincident economic indicators relate to the official tracking of business-cycle peaks and troughs.

First, take note of the somewhat jagged red line displayed in the exhibit. It provides a hypothetical tracking of real gross domestic product over several months. Two peaks are evident, labeled with P. One trough is displayed as well, marked by T.

Coincident Indicators
Business Cycle

A click of the [Coincident] button reveals a thin green line that rises and falls together with the rise and fall of real GDP, tracking along with the peaks and troughs of the business cycle. This green coincident indicator line lies virtually on top of the red real GDP line.

Here and Now

Coincident economic indicators "coincide" with aggregate business-cycle activity. They rise and fall as overall economic activity rises and falls. These indicators, in effect, document actual business-cycle events. Coincident economic indicators are a primary source of information used to document "official" business-cycle turning points.

Having accurate information about CURRENT economic conditions is not as easy as it might seem. Collecting, processing, and analyzing data takes time. While financial data (stock market prices, interest rates, etc.) are available almost instantaneously, most information about the economy is available only weeks, if not months, after the fact. Coincident indicators are some of the most timely economic measures available.

Practical and Theoretical

Coincident indicators are chosen primarily because they have been shown to work, to mark the incidence of business cycle peaks and troughs. However, they also draw on theoretical cause-and-effect relations that make up the complex cause-and-effect process that underlies business cycles. These are the key dimensions of the economy that are caused by variables that make up the leading indicators and they subsequently cause changes in the variables that make up the lagging indicators.

In particular, coincident economic indicators measure four key aspects that is the aggregate economy--employment, production, income, and sales. When concerns are directed toward the current state of the macroeconomy, these are the four most important areas of interest. When the aggregate economy is expanding or contracting, these are the four areas that are expanding and contracting.

The Other Two

While coincident economic indicators document the current state of business cycles, the other two--leading and lagging--also have important roles to play in tracking business cycles.
  • Leading: These are ten measures that generally indicate business-cycle peaks and troughs three to twelve months before they actually occur. Leading economic indicators predict where the economy is headed in the near future, providing enormous assistance to consumers, business leaders, and policy makers who need to anticipate and plan for future economic conditions.

  • Lagging: These are seven measures that generally indicate business-cycle peaks and troughs three to twelve months after they actually occur. Lagging economic indicators provide the final, conclusive evidence that peaks and troughs did occur, making it possible to direct attention to the next phase of the business cycle.

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Recommended Citation:

COINCIDENT ECONOMIC INDICATORS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: October 23, 2018].


Check Out These Related Terms...

     | business cycle indicators | leading economic indicators | lagging economic indicators |


Or For A Little Background...

     | business cycles | business cycle phases | potential real gross domestic product | full employment | expansion | contraction | peak | trough |


And For Further Study...

     | investment business cycles | political business cycles | demand-driven business cycles | supply-driven business cycles | unemployment | inflation |


Related Websites (Will Open in New Window)...

     | The Conference Board | National Bureau of Economic Research |


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