The Business Cycle
Indicators of the Business Cycle
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Leading Indicators
Leading indicators are used to predict future trends of economic activity. Some leading indicators that can be used are:
Share market movements
Building approvals
Loan approvals
Household confidence surveys
Business confidence surveys
Purchasing Managers Index
Co-Incident Indicators
Co-incident indicators are used to show current trends in economic activity. Some co-incident indicators that can be used are:
Retail sales
Unemployment rate
Participation rate
Cash Rate
Lagging Indicators
Lagging indicators are used to confirm past trends of economic activity. They are usually more reliable in nature.
Some lagging indicators include:
Gross Domestic Product
Inflation rate
Average Weekly Earnings
Balance on the Current Account
Was the GFC a Trough?
We can use leading, co-incident, and lagging indicators to confirm the GFC was a trough. Indicators provide evidence of past phases of the business cycle and predict future phases.
The GFC was a trough phase of the business cycle, evident by the following indicators:
Leading Indicators
Share market crash
Building approvals fell from 11.2% (Nov 2007) to -31.7% (Jan 2009)
Co-Incident Indicators
Cash rate eased from a peak of 7.25% to a low of 3%
Lagging Indicators
Annual GDP growth fell from 4.3% (Sep. 2007) to 0.3% (Dec 2008)
Inflation rate fell from 5% (Sep 2008) to 1.3% (Sep 2009)
From these indicators, it can be shown that a trough occurred during 2009.