Coincident Indicator
What is Coincident Indicator?
Coincident indicators are series that rise and fall roughly in step with the overall economy, so they describe where the business cycle stands now.
Coincident indicators move at about the same time as the broader economy, so they describe the present state of activity rather than the future or the past. The four standard series are nonfarm payroll employment, real personal income excluding transfer payments, industrial production, and real manufacturing and trade sales, which The Conference Board combines into a coincident index. Because the committees that date recessions want to know when activity actually peaked, these are the series they lean on alongside GDP. A coincident indicator still gets revised after publication, so the picture of the present keeps changing as fuller data arrives. The difference from a leading indicator is timing, not quality: coincident series are usually measured more accurately, they simply give no advance warning.
Coincident Indicator: a worked example
Suppose that in one month payroll employment falls 0.2 percent, industrial production falls 0.4 percent, real manufacturing and trade sales fall 0.3 percent, and real personal income excluding transfers is flat at 0.0 percent. An equal-weighted average is (-0.2 - 0.4 - 0.3 + 0.0) ÷ 4 = -0.225, so the coincident index drops by roughly a quarter of a percent. Four series moving down together is the pattern that marks a downturn already in progress, as opposed to weakness in one sector. A dating committee would still wait for revisions and for the decline to persist before calling a peak.
The mistake students make with coincident indicator
Students assume a coincident indicator tells you the economy has turned the moment it prints. Data arrive weeks after the period they cover and get revised for months afterward, so a coincident series describes a recent past that is still being measured. The related error is expecting GDP to be both coincident and timely. It is coincident, but quarterly and heavily revised, which is why monthly series fill the gap between GDP releases.
Coincident Indicator questions
What are the four coincident indicators?
The four are payroll employment outside farming, personal income with transfer payments taken out, industrial output, and inflation-adjusted sales at manufacturers, wholesalers and retailers. The Conference Board publishes them together as one monthly index. Each records activity as it happens rather than in advance.
Is GDP a coincident indicator?
Yes, real GDP is the broadest coincident measure, since it records production during the quarter it covers. It gets used less for month-to-month tracking because it is quarterly and revised substantially. Monthly coincident series fill the gap between GDP releases.
How is a coincident indicator different from a leading one?
A coincident indicator moves at the same time as the economy, while a leading indicator moves before it. That makes coincident series better for describing conditions and leading series better for anticipating them. Lagging indicators complete the set by confirming a turn after it has happened.
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