Business Cycle
Indicators of the Business Cycle
Leading Indicators
Leading indicators are used to predict future trends of economic activity. Some leading indicators that can be used are:
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Share market movements
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Building approvals
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Loan approvals
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Household confidence surveys
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Business confidence surveys
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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:
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Retail sales
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Unemployment rate
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Participation rate
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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:
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Gross Domestic Product
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Inflation rate
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Average Weekly Earnings
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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 predicts future phases.
The GFC was a trough phase of the business cycle, evident by the following indicators:
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Share market crash (leading)
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Building approvals fell from 11.2% (Nov 2007) to -31.7% (Jan 2009)
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Cash rate eased from a peak of 7.25% to a low of 3% (Co-Incident)
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Annual GDP growth fell from 4.3% (Sep. 2007) to 0.3% (Dec 2008) - Lagging
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Inflation rate fell from 5% (Sep 2008) to 1.3% (Sep 2009) - Lagging
From these indicators it can be shown that a trough occurred during 2009.