Indicator Series
With the rapid evolution into the age of information, one would think that we would have been able to accurately forecast the future of the markets and economies. However, as the economist John Kenneth Galbraith once very aptly put it (Wall Street Journal, Jan 22, 1993, C1): "There are two kinds of forecasters: those who don't know, and those who don't know they don't know.'' Nevertheless, we still try to make educated guesses – which is a far better option than blind randomness. Some of those educated guesses can be made by using and analyzing cyclical indicators. The rationale behind using the cyclical indicator approach to forecast the economy is that there is a noticeable pattern to the expansion and contraction of the collective economy. There are three main categories of indicators used by analysts – leading indicators that usually reach the peaks and troughs of the economic cycle before corresponding highs and lows of the aggregate economy; coincident indicators where the high and lows roughly match that of the aggregate economy; and lagging indicators whose highs and lows lag that of the aggregate economy. An example of a leading indicator is the stock of "money,'' i.e. stock of cash and bank deposits held
Several leading indicators are often combined to form a leading index: a single composite statistical series that can give advance warning about business cycle movements. Combining several indicators helps keep temporary developments in one part of the economy from giving a false impression about where the overall economy is headed. The US Composite Indexes - the leading, coincident, and lagging indexes are essentially composite averages of between four and ten individual relevant indicators – are a good example of this. According to the latest reports on the Global Indicators website, the composite leading index for the US increased again in August, and is now up by 2.5 percent from its low in March (more than a 6.0 percent annual rate). In addition, the strength in the leading index has been widespread over this period (The Conference Board Business Cycle Indicators). This also indicates that the US economy is expanding. The stockmarket is arguably one of the best leading indicators to get a clearer picture of the current state of the economy as well as the future. The stock market tends to anticipate movements in the economy: in recessions profits and earnings are down so stock prices should fall as soon as the market anticipates a recession. The S&P 500 has at least match, if not anticipated every pos
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Approximate Word count = 890
Approximate Pages = 4 (250 words per page double spaced)
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