Leading Economic Indicators and How to Use Them

Leading economic indicators are data points that tend to shift direction before the broader economy does. These indicators offer early clues about future growth, inflation, hiring or spending.

They respond quickly to changing conditions and often reflect decisions, like placing new orders or applying for permits, that occur before economic activity shows up in official reports. This is what separates them from lagging indicators, which confirm trends only after they have taken hold, and coincident indicators, which move in real time with the economy.

Common leading indicators include stock market performance, consumer confidence surveys, new manufacturing orders, housing starts and the slope of the yield curve.⁽¹⁾

Key leading economic indicators

Several widely watched metrics consistently move ahead of the business cycle and help investors anticipate turning points. The following key economic indicators offer different views of economic momentum and often complement each other, even when they do not point in the same direction.

Stock market performance

The stock market is called a leading indicator because prices move based on what investors expect to happen next, not exactly what’s happening right now.

When stock prices climb steadily, it usually signals confidence in future earnings, economic growth and interest-rate trends over the next several months.⁽²⁾ When stocks fall, it can mean investors see trouble ahead, such as slowing growth or tighter financial conditions.

While markets aren’t a perfect predictor, they often react before official economic reports catch up.

Manufacturing activity

Manufacturing indicators track new orders, production plans and supply chain activity — all of which tend to shift before the broader economy does.⁽²⁾ When factories see rising orders or increased output, it usually signals that businesses expect stronger demand ahead. When those readings weaken, it often reflects caution before slowdowns show up in GDP or job numbers.

Even though manufacturing is a smaller part of today’s economy, it still reacts quickly to changes in business confidence, making it a reliable early signal.

Consumer confidence index

The Consumer Confidence Index gauges how hopeful (or worried) households feel about their finances and the economy as a whole.⁽³⁾ Because consumer spending powers much of the US economy, changes in sentiment often show up before the actual spending shifts.

When confidence rises, it can signal future growth in retail sales, travel and big purchases. When it drops, it often points to slower consumer activity, well before the data confirms it.

Building permits and housing starts

Building permits and housing starts measure planned and newly started residential construction.⁽²⁾ This makes them a useful early signal of economic momentum.

Because homebuilding responds quickly to interest rates and credit conditions, rising permits often point to stronger demand or improving household finances. Declines can signal upcoming slowdowns in construction, jobs and related consumer spending.

Since housing touches many parts of the economy, these indicators often signal shifts before the business cycle does.

Interest rate spreads (yield curve)

The yield curve compares interest rates on short-term and long-term Treasury bonds, offering a snapshot of how investors expect the economy to perform.⁽²⁾

A steep curve — which is when long-term rates sit well above short-term rates — usually signals optimism about future growth and inflation.⁽⁴⁾ When the curve flattens or even inverts, meaning short-term rates rise above long-term ones, it often reflects concerns about slower growth ahead.

Historically, an inverted yield curve has been one of the most consistent early warnings of a potential recession.

How leading indicators are used

Leading indicators guide decisions across the economy because they offer an early read on where conditions are headed. Investors, business leaders and policymakers all use these signals to prepare for shifts before they appear in official data.

• In investment strategies. Investors use leading indicators to time moves in stocks, bonds and commodities, adjusting portfolios ahead of economic turning points.
• In business planning. Companies rely on these metrics to forecast sales, plan hiring, manage inventory and decide when to expand or cut back on capital spending.
• In policy-making. Government agencies and central banks monitor leading indicators to gauge emerging risks, helping them shape interest rate decisions, fiscal responses and contingency plans for potential downturns or periods of growth.⁽⁵⁾

Limitations and considerations

Leading indicators are powerful tools, but they aren’t perfect. They can issue false signals, move on sentiment rather than fundamentals or point in different directions at the same time. That’s why they work best when evaluated alongside other economic data, viewed in context and tracked over longer trends rather than single-month fluctuations.

How to track leading economic indicators

Most leading indicators are easy to follow through government sources like the Bureau of Labor Statistics, the Census Bureau and the Federal Reserve. You can also check financial news outlets and market analytics platforms.

Investors can integrate these metrics into their decision-making by watching for multi-month patterns, comparing indicators across sectors and adjusting portfolio risk levels when several signals point in the same direction.

Bottom line

Leading indicators won’t predict the future with certainty, but they offer an early, valuable glimpse into where the economy may be headed. Using them thoughtfully, alongside broader data, can help investors and planners make more confident, better-timed decisions.

Frequently asked questions

• What is the biggest economic indicator?

  There isn't a single "biggest" economic indicator, but many analysts point to GDP, employment data and inflation measures as the most influential for understanding overall economic health. For forward-looking insights, the Conference Board's Leading Economic Index (LEI) is often considered one of the broadest and most closely watched composite indicators.

• How accurate are leading economic indicators?

  Leading indicators can be useful, but they're not perfectly accurate. They often provide early signals about turning points in the economy. But they can signal false alarms or shift sentiment rather than concrete data. Their value is highest when several indicators point in the same direction over multiple months.

To make sure you get accurate and helpful information, this guide has been edited by Matt Miczulski as part of our fact-checking process.

Written by

Summer Nevins

Contributor

Summer Nevins is a freelance personal finance writer for Finder. After almost a decade of working in banking and financial services, she quickly realized her true passion is to educate consumers about the complicated facets of all things money. Summer has channeled her passion for personal finance education into writing and since 2020 has written for various clients and publications. She’s recently been working with Influencers like Erika Kullberg and continues to contribute to other finance publications. She holds a BS in Management and Finance and an MBA specializing in Data Analytics from Western Kentucky University. See full bio