{"id":967063,"date":"2024-12-09T12:50:14","date_gmt":"2024-12-09T10:50:14","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=967063"},"modified":"2024-12-09T12:50:15","modified_gmt":"2024-12-09T10:50:15","slug":"understanding-indicators","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/academy\/videos\/understanding-indicators\/","title":{"rendered":"Understanding Indicators"},"content":{"rendered":"\n

Description<\/h2>
In this video, we explain the three types of indicators \u2014 leading, lagging, and coincident \u2014 which combine for a balanced financial education.<\/div><\/div>

Transcript<\/h2>
\n

Part of investing is being aware of the macro-economy.<\/p>\n\n\n\n

This includes stats like the unemployment rate, the inflation rate and GDP – how productive the economy is.<\/p>\n\n\n\n

While individual stocks can rise and fall by their own merit, generally speaking the markets can be impacted by these larger macro trends.<\/p>\n\n\n\n

Economists categorise these trends into three kinds of indicators: coincident, lagging, and leading.<\/p>\n\n\n\n

Coincident indicators more or less happen in real time.<\/p>\n\n\n\n

This includes numbers like total retail sales.<\/p>\n\n\n\n

Sales rise and fall with changes in growth.<\/p>\n\n\n\n

Lagging indicators – well, they take a second.<\/p>\n\n\n\n

These indicators tend to show up after something has happened.<\/p>\n\n\n\n

This includes numbers like the unemployment rate and GDP.<\/p>\n\n\n\n

The unemployment rate lags because it takes time for businesses to start having issues and eventually those issues get bad enough that they have to let people go.<\/p>\n\n\n\n

And GDP data lags because it shows how the economy performs in the quarter prior.<\/p>\n\n\n\n

Finally we get to the exciting ones: leading indicators.<\/p>\n\n\n\n

Now, no one has a crystal ball – well, psychics have a crystal ball.<\/p>\n\n\n\n

No one has a functioning crystal ball, but conceptually these indicators foreshadow the health of the economy.<\/p>\n\n\n\n

One number? Building permits.\u00a0<\/p>\n\n\n\n

When permits are issued we know that new real estate is being built, showing that growth is on the move.<\/p>\n\n\n\n

Another, filings for unemployment benefits, also known as jobless claims.<\/p>\n\n\n\n

These claims tend to increase before recessions or periods of slower economic growth.<\/p>\n\n\n\n

Companies reduce hiring and may start laying off workers.<\/p>\n\n\n\n

Since jobless claims are reported on a weekly basis, they tend to be most sensitive to changing trends in the job market.<\/p>\n\n\n\n

That said, no single indicator is enough to understand the complex economy.<\/p>\n\n\n\n

Taken in isolation, an indicator is just a number and the macro-economy, which abstractly encompasses every transaction every human being on earth makes, isn’t reducible to a figure or two or even ten.<\/p>\n\n\n\n

Even so, leading, lagging, and coincident indicators are powerful starting points for building your own picture of how the economy is doing, which can be an impactful aspect of one’s overall investment thesis.<\/p>\n<\/div>