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LEADING ECONOMIC INDICATOR: One of eleven economic statistics that tend to move up or down a few months before the expansions and contractions of the business cycle. These leading indicators are -- manufacturers new orders, an index of vendor performance, orders for plant and equipment, Standard & Poor's 500 index of stock prices, new building permits, durable goods manufacturers unfilled orders, the money supply, change in materials prices, average workweek in manufacturing, changes in business and consumer credit, a consumer confidence index, and initial claims for unemployment insurance. Leading indicators indicate what the aggregate economy is likely to do, business-cycle-wise, 3 to 12 months down the road. When leading indicators rise today, then the rest of the economy is likely to rise in the coming year. And when leading indicators decline, then the economy is likely to decline in 3 to 12 months.
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                           PEAK: The transition of a business-cycle expansion to a business-cycle contraction. The end of an expansion carries this descriptive term of peak, or the highest level of economic reached in recent times. A peak is one of two turning points. The other, the transition from contraction to expansion, is a trough. Turning points are important because they represent the transition from bad to good or good to bad. A business-cycle peak means the economy has reached the highest level of production in recent times. Unfortunately, because a peak is a turning point, it means that a contraction is beginning. Even though a peak is the "highest," this is not something that the economy actually wants. Ideally, a peak is never reached and the economy continues to expand.A Graphical PinnacleThe Highest Turning Point |  | The diagram at the right presents a simple business cycle. The red line represents the value of real gross domestic product (real GDP) over a period of several months. The blue line is potential real GDP, the amount of real GDP that the economy can produce by fully employing all resources. A business-cycle expansion is indicated as the increase in real GDP from point B to point C.While expansions are generally good, unfortunately they do not last forever. At least none have so far. There is always hope that the "current" expansion will not end. And people sometimes euphorically think that it will not. But so far every expansion, save for the "current" one, has ended. A click of the [Peak] button highlights the business cycle peak at point C which ends the expansion displayed here. A Bit of Inflation?If the peak of a business cycle lies above the long-run trend, the prospect of higher inflation emerges. Because the long-run trend represents full employment, when real GDP exceeds the potential real GDP, then the economy is trying to produce more than it can sustain in the long run. The result is higher prices and inflation. Inflation tends to be most pronounced near the peak. In fact, rising inflationary pressures often contribute to the end of the expansion and the onset of a contraction, especially if the government sector fights inflation with contractionary stabilization policies.Tracking the NumbersLike other aspects of business cycles, a peak is officially identified by the official business-cycle watchers at the National Bureau of Economic Research. Inevitably an official peak is only officially designated a year or two after the fact, once all of the relevant data have been processed and analyzed.While knowing when a peak did occur is useful information, anticipating when one will occur is even better. Knowing when the current expansion will end and the next contraction will begin makes it possible to plan for the ensuing bad times. Workers, especially those most likely to be unemployed, can be helped by anticipating a peak. So too can businesses that are seeking to avoid lost profits or even bankruptcy. Forecasting a peak is perhaps most useful for government leaders who can implement timely policies that might actually avoid the peak and ensuing contraction entirely. Forecasting upcoming peaks is commonly attempted using leading economic indicators, a series of ten economic statistics that tend to reach their "peak" three to twelve months before the actual business cycle. More sophisticated forecasts are also provided by complex mathematical models of the economy.
 Recommended Citation:PEAK, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 10, 2025]. Check Out These Related Terms... | | | | | | | | | | Or For A Little Background... | | | | | | | | | And For Further Study... | | | | | | | | | Related Websites (Will Open in New Window)... | | |
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