The Business Cycle
Indicators of the Business Cycle
Leading indicators are used to predict future trends of economic activity. Some leading indicators that can be used are:
Share market movements
Household confidence surveys
Business confidence surveys
Purchasing Managers Index
Co-incident indicators are used to show current trends in economic activity. Some co-incident indicators that can be used are:
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
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:
Share market crash
Building approvals fell from 11.2% (Nov 2007) to -31.7% (Jan 2009)
Cash rate eased from a peak of 7.25% to a low of 3%
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.