Money Supply And The Leading Economic Indicators by Clifford J. Sherry, Ph.D.
This longtime Stocks & Commodities contributor and author discusses the relationship between the money supply and the composite index of leading economic indicators.
The National Bureau of Economic Research developed a system of leading, coincident and lagging indicators covering a wide variety of economic processes in the 1930s. The monthly figures for these indicators and their components, as well as a variety of other economically important time series, are published by the US Department of Commerce in Business Conditions Digest.
Empirical observation and economic theory come together in the effort to select and classify indicators. These indicators theoretically provide insights into the business climate and its fluctuations. The United States tends to exhibit more cycles than other market-oriented countries.
Theoretically, the composite index of leading economic indicators (CI) is important to traders and investors because of its predictive quality and because it is seemingly sensitive to economic changes, especially as detected in the aggregate marketplace. The CI samples six major economic processes: 1) employment and unemployment; 2) production, income, consumption and trade; 3) fixed capital investment; 4) inventories and inventory investment; 5) prices, costs and profits; and 6) money, credit and interest rates.