Posted by associate staff writer

If you are involved in the stock market, you probably have a good idea of how to follow some of the leading economic indicators. This is generally used to refer to an economic statistic, like the inflation rate, Gross Domestic Product or unemployment rate, that helps to indicate how well or how poorly the market is doing. These indicators also show you a fairly accurate image of how the market will do in the future. Today’s leading economic indicators are flashing warning signs across the board, indicating that the economy is not only not recovering yet at all, but is in high danger of failing again.

To understand these indicators and how they can help you determine the best way to invest money, you need to have a grasp of which indicators differ. Each indicator has three attributes, which include the relation of the indicator to the economy. This may be pro-cyclic, which means it will be increasing if the economy is doing better, and decreasing when the economy is doing worse.

A counter-cyclic indicator is one that goes the opposite way of the economy. An example of this is unemployment, since it gets larger when the economy is doing more poorly.

Acyclic leading economic indicators don’t relate to the economy’s health, and they are thus not as helpful in determining where the economy is going.

Another facet of a leading economic indicator is how often new numbers are seen. In most developed countries, Gross Domestic Product figures are released every quarter, so this type of indicator is seen less frequently than the Dow Jones Industrial Average, which can change by the minute, on trading days.

You also need to understand the timing of leading economic indicators, since this is an important aspect when doing calculations. Leading economic indicators are those that will tend to change before the economy does, thus the term "leading." The returns of the stock market are leading indicators, since the stock market will usually decline before the overall economy does. In our present business climate, the Dow has been climbing for a bit, but it has also had some volatile trading days. Once the DJIA begins increasing on a more regular basis, without precipitous drops, this will indicate that the economy is beginning to come out of recession.

The leading economic indicators we see today are warning of a dip in the recovery, or of seeing no actual recovery at all, at this time. Stocks are having difficulty right now, and this is a dark sign on the horizon that the recovery is not a reality, but that we may be headed back into recession. Many investors, strategists and economists are still counting on the country having an overall recovery, but the stock market on occasion in the near past has not altogether supported that conclusion.

When looking at the current leading economic indicators, it appears that there is a strong possibility of a coming financial crisis in the U.S.