1.9 Business Cycles & Economic Indicators
The economy moves through recurring cycles of expansion and contraction. Classifying economic indicators into leading, coincident, and lagging categories is tested on every exam.
Key FINRA Exam Takeaways
- 4 Phases of the Business Cycle: Expansion -> Peak -> Contraction (Recession) -> Trough.
- Recession: Defined as at least TWO consecutive calendar quarters (6 months) of Gross Domestic Product (GDP) decline.
- Depression: Defined as a severe decline in GDP lasting at least 6 quarters (18 months) or a 10%+ GDP drop.
- Leading Indicators: Predict future economic activity (stock prices, building permits, average weekly hours, M2 money supply).
- Coincident Indicators: Measure current economic activity (industrial production, personal income, non-agricultural payrolls).
- Lagging Indicators: Confirm past economic trends (average duration of unemployment, prime rate, corporate profits).
Knowledge Checkpoint • Section 1.9
Which of the following economic metrics is classified as a LEADING economic indicator?