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What do leading, coincident, and lagging economic indicators have to do with manufacturing?

Economic indicators are also known as economic statistics.These economic statistics provide information about where a given industry is in terms of their business cycle.In other words, economic indicators can give a business a good idea of how they are doing when compared to the rest of the economy.In the case of manufacturing, economic indicators will show the timing of changes made within the manufacturing industry and how they relate to the economy as a whole.Economic indicators are usually grouped into three categories which include: leading, coincident, and lagging economic indicators.

Leading economic indicators

Leading economic indicators change before the economy changes.An example of a leading economic indicator would be the stock market.There are about ten leading economic indicators that are being monitored. A few examples of these indicators would be stock prices, money supply, interest rate spread, etc.The stock market usually starts declining before the economy does.Likewise, the stock market is usually able to rebound from a recession more quickly than can the economy.Leading economic indicators help investors to make their predictions about what direction the economy is headed in.Knowing the possible direction of the economy can help the manufacturing industry to tailor production, distribution and sales accordingly.Leading economic indicators tend to move up or down a few months or as much as 12 months before businesses begin their expansions or contractions (depending on the direction of the move).Being ahead of the curve can definitely give a manufacturer and advantage.

Coincident economic indicators

A coincident economic indicator moves at the same time the economy does.One example of a coincident economic indicator is the Gross Domestic Product.Coincident economic indicators move up and down according to current business cycles.Employees on nonagricultural payrolls, personal income less transfer payments, industrial production, manufacturing and trade sales are the four coincident economic indicators that are tracked.Looking at the coincident economic indicators gives you a good idea of exactly what the economy is doing right now.This large scale representation of the economy is important for manufacturing in the global scale.Without an accurate representation of the whole economic picture it is difficult to see if your current state of production is at, above, or below where the economical industry average should be.An accurate comparison of competitors in the industry and current supply and demand relationships helps a manufacturer to make educated evaluations of current business practices.

Lagging economic indicators

As you may have been able to guess, a lagging economic indicator is an economic indicator that does not change direction until after the economy changes.One example of a lagging economic indicator that you may be familiar with is the unemployment rate.The unemployment rate is a lagging economic indicator because it does not change until economic factors have already been made manifest.This is why current growths in the economy are not immediately met with growths in the employment rate.This change usually takes at least a few months or an "economic quarter."Other lagging economic indicators that are tracked include the inventories to sales ratio and the average prime rate.Lagging economic indicators are also responsible for the fact that it takes 3 to 12 months to see significant changes in the ratio of consumer credit to personal income.

Leading, coincident, and lagging economic indicators have as much to do with manufacturing as they do with any company that is part of our economy.In order to stay ahead in business manufacturers need the advantages that following economic indicators can provide.Economic indicators are like tiny glimpses into the future, opportunities to learn in the present, and experiences to learn from that are now passed.

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