The Business Cycle

Indicators of the Business Cycle

Contributors
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Christian Bien

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Leading Indicators
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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

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Co-Incident Indicators
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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

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Concept of the Business Cycle
Characteristics of the Business Cycle
Indicators of the Business Cycle

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Lagging Indicators

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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

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Was the GFC a Trough?
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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.

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