DataCast Internal Forecasting

The Importance of Using Leading Indicator Inputs

By ITR Economics on June 22, 2023

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ITR Economics

ITR Economics is the oldest, privately-held, continuously operating, economic research and consulting firm in the US.

The unique methodology we use for all our forecasts at ITR Economics is what helps make our overall accuracy rating stand out at 94.7%. Alongside our business cycle theory and rate-of-change calculations, the way we use leading indicators is a fundamental feature of our economic analysis. With a comprehensive understanding of the importance of using these indicator inputs, you will be well on your way to seeing the future for your business.

Getting Started With DataCast Pro™

A subscription to DataCast Pro™ is the best way to begin incorporating leading indicator inputs into your business strategy. This will go a long way toward building the confidence within your leadership team to make the best strategic decisions for the company.

When beginning your DataCast Pro journey, you will work closely with one of our expert economists to upload your data and select the best leading indicators that correlate with your datasets. We hold more than 15,000 indicators in our database, so your economist will help get you started on the right foot.

How Do Leading Indicators Relate to My Data?

A leading indicator is any sort of economic indicator that has a leading relationship to the subject series being analyzed.

We establish a timing relationship between the indicator and your company’s data, based on the cyclical highs and lows, which then generates the lead time. With this lead time, we can shift the indicator forward by the appropriate number of months, which gives us a visual representation of the possible projected path for your business.

For example, changes in corporate bond prices indicate how US Industrial Production will perform in 10 to 12 months. This is important to know, because US Industrial Production is a key component of the US economy.

[ Further Reading: What Are the Top Leading Indicators That ITR Economics Uses? ]

How Do You Know When to Change Your Business Strategy?

Of course, simply following the leading indicators will accomplish nothing if you do not act on what they are telling you. After you and an ITR economist find the indicators that are most applicable to your business, keep these tips in mind as you follow those selected indicators:

  • When TWO of your leading indicators change direction, pay close attention.
    • When two of your leading indicators turn upward or downward, this is a signal that the economy is beginning to change.
    • At this time, start planning your business strategy to reflect the change in your indicators. Planning takes time; starting now gives you ample time to develop your strategy for later implementation.
      • If the shift you noticed in your indicators turns out to be misleading or does not ultimately come to fruition, this is fine. Having plans ready is not an overreaction. It is much better to be prepared than to be stuck playing catch-up.
  • When FIVE of your leading indicators reverse direction, it is time to act.
    • When five of your leading indicators reverse direction, it is rarely a coincidence – this is a strong signal that the economy is turning.
    • By knowing which business cycle phase the economy is headed toward, you can make sure you are ready to implement your new strategy to capitalize on the coming economic changes.

Using DataCast Pro to follow the leading indicator inputs that are applicable to your business is a great way to identify turns in the business cycle before they happen. Then, you can take the emotion out of your strategy and position your company to capitalize on the coming economic changes. If you think DataCast Pro might the right fit for your business, connect with us at ITR Economics to start seeing the future!

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