Essay about Factors Of Leading Indicators On Business
Leading Indicators is a classification of indicators which are used to predict future economic trend. In contrast, lagging indicators respond to events and are used to confirm a pattern that has developed.
A few of the impacts of these indicators on businesses are highlighted below: 1. Forecasts the Cost of Capital: Low interest rates typically signal a problem in the economy while higher interest rates suggest expansion and growth. Additionally, for business, as interest rates are generally the cost of capital, higher interest rates will increase costs and vise-versa.
2. Confirms the State of the Economy so that Producers Can Adapt Production: High unemployment, a lagging indicator, confirms that the economy is not booming. In this case, business will plan accordingly and decrease production as they estimate lower demand for goods and services.
3. Changes the Competitive Landscape: Indicators such as higher productivity and stable inflation may draw in foreign direct investment and cause a surge in demand for factors of production locally.
2. Business Inventories:
Business inventories are cumulative count of the amount of all products available for sale. Business inventories when tracked with the sales index can be used as a forecast tool for production activity in the short term. Figure 1 below highlights the trend in the last five years regarding the changes in the level of inventory held in the U.S.
Figure 1: Change in…