Bci

Key Takeaways

• Business cycle indicators predict and confirm changes in the economy's direction.
• Leading, lagging, and coincident indicators help identify economic trends and turning points.
• The Conference Board publishes a widely followed set of business cycle indicators.
• BCIs must be used with other data to fully understand economic activity.
• Historical business cycles often repeat patterns but are unpredictable in their timing.
• Get personalized, AI-powered answers built on 27+ years of trusted expertise.

What Are Business Cycle Indicators (BCI)?

Business cycle indicators (BCI) are a composite of leading, coincident, and lagging indexes created by the Conference Board to forecast, date, and confirm changes in the direction of the overall economy of a country. They're published monthly and can be used to measure the peaks and troughs of the business cycle.1

Leading indicators predict shifts in the business cycle before they occur. Lagging indicators confirm trends after economic fluctuations have started. Coincident indicators change as the economy changes, tracking real-time economic activity. Business cycles consist of expansion, peak, contraction, and recession stages.

Analyzing Business Cycle Indicators in Economic Forecasting

Economies don't tend to grow at a consistent linear or exponential rate. They experience periods of faster or slower growth as well as occasional episodes of outright decline in economic activity. These quasi-periodic fluctuations of economic activity, such as production and employment, are known as business cycles.2

Past business cycles may show patterns that are likely to be repeated to some degree, but the timing of peaks and troughs in business cycles isn't always predictable. Understanding, anticipating, and overcoming the volatility of these cycles is a major focus of research by economists, public policymakers, and private investors.

Important

There's usually a rise in activity that reaches a high point or peak, followed by a decline in output and employment until the economy reaches a bottom that's referred to as a trough.

One prominent avenue of this research has been the measurement and dating of trends and turning points in economic data and statistics. Numerous sets of indicators have been constructed from this research.

The Evolution of Business Cycle Indicators

Wesley Mitchell and Arthur Burns at the National Bureau of Economic Research (NBER) were responsible for compiling the first set of BCI and using the data to analyze economic boom and bust cycles during the 1930s.3

There were a total of 12 business cycles between 1945 and 2009, according to the NBER.4

The U.S. Department of Commerce began publishing BCI in the 1960s. The task of compiling and publishing the indicators was privatized in 1995, and the Conference Board became responsible for the report.5

Decoding Business Cycle Indicators for Economic Insight

Interpretation of BCI involves much more than simply reading graphs. An economy is too complex to be summarized with just a few statistics. Investors, traders, and corporations must realize that it's unreasonable to believe that any single indicator or even a set of indicators always gives true signals and never fails to foresee a turning point in an economy.

BCIs are constructed by looking at a wide range of government and private sector data that are statistically correlated with or logically related to national macroeconomic performance.

Exploring The Conference Board's Key Economic Indicators

One of the most prominent and intensely watched set of BCIs is published by the Conference Board. It includes composite leading, coincident, and lagging indexes for various national economies.

The Role of Leading Indicators in Predicting Economic Trends

Leading indicators measure economic activity in which shifts may predict the onset of a business cycle. Components of the index of leading indicators include average weekly work hours in manufacturing, factory orders for goods, housing permits, and stock prices. Changes in these metrics could signal a shift in the business cycle.

The Conference Board notes that leading indicators receive the most attention because of their strong tendency to shift in advance of a business cycle.6 Other leading indicator components include the index of consumer expectations, average weekly claims for unemployment insurance, and the interest rate spread.7

Leading indicators are most meaningful when they're included as part of a framework that includes coincident and lagging indicators, according to the Conference Board. They help provide the necessary statistical context for understanding the true nature of economic activity.6

Understanding Lagging Indicators as Economic Verifiers

Lagging indicators confirm the trend that leading indicators predict. Lagging indicators shift after an economy has entered a period of fluctuation.8

Components of the index of lagging indicators highlighted by the Conference Board include the average length of unemployment, labor cost per unit of manufacturing output, the average prime rate, the consumer price index (CPI), and commercial lending activity.7

Fast Fact

Various factors of unemployment are components of all three Conference Board business cycle indicators.

Coincident Indicators: Measuring Real-Time Economic Activity

Coincident indicators are aggregate measures of economic activity that shift as a business cycle progresses.6 Examples include the unemployment rate, personal income levels, and industrial production.7

Are There Other Types of Indicators?

The Consumer Price Index weighs the average price of goods and services to measure changes in the cost of living and is a component of the index of lagging indicators. Moving average (MA) is an indicator used in the stock market to identify the direction or trend of a specific stock.

What Is a Business Cycle?

A business cycle is the up-and-down flow of economic activity over a given time. Activity in consumption, employment, investment, and other indicators measures overall economic activity.9

What Are the Stages of a Business Cycle?

A business cycle isn't complete unless and until it experiences a boom and a contraction in chronological order. The typical stages of a business cycle are expansion, peak, contraction, and then recession.10