Lesson 2
Leading Indicators
Build a dashboard of leading indicators. When multiple indicators turn together, the signal is strong. Don't wait for GDP data — position based on where the economy is GOING.
📊 Indicators mentioned in this lesson (click for details):
Leading indicators tell you where the economy is GOING, not where it is.
The Major Leading Indicators:
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Yield Curve (T10Y2Y) (2s10s (T10Y2Y) spread): Inverts before recessions (6-24 months lead)
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Building Permits: Construction is interest-rate sensitive. Leads housing by 6-9 months.
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ISM New Orders: Above 50 = expansion, below 50 = contraction. Leads industrial production by 2-4 months.
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Stock Prices: Markets discount future earnings. Usually bottom 3-6 months before recession ends.
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Consumer Expectations: University of Michigan, Conference Board surveys.
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Initial Jobless Claims (ICSA): Weekly data on new unemployment filings. Rising claims = layoffs starting.
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Credit Spreads: Widening spreads lead economic weakness by 6-12 months.
The Composite:
The Conference Board Leading Economic Index (LEI) combines many of these. When LEI falls for 6+ consecutive months, recession probability is high.
Check your understanding
Lesson Quiz
Quiz Check
Why is the yield curve (T10Y2Y) one of the most reliable recession predictors?