While leading indicators predict the future and lagging indicators confirm the past, coincident indicators tell you what is happening right now. These real-time measures of economic activity help traders understand current conditions and validate whether the economy is actually in expansion or contraction.
What Are Coincident Indicators?
Coincident indicators are economic metrics that move simultaneously with the overall economy. When the economy expands, these indicators rise. When the economy contracts, they fall. They provide a real-time snapshot of economic conditions without the prediction element of leading indicators.
Key insight: Coincident indicators help confirm whether we are actually in a recession or expansion. They answer the question: "What is the economy doing right now?" rather than "What will it do next?"
The Four Major Coincident Indicators
The Conference Board's Coincident Economic Index (CEI) combines four primary components:
1. Nonfarm Payroll Employment
This measures the total number of paid workers in the US excluding farm workers, government employees, private household employees, and nonprofit organization employees. It is the broadest measure of job market health.
- Released: First Friday of each month by the Bureau of Labor Statistics
- Why it matters: Employment directly reflects current economic activity
- Trading impact: Major market mover; surprises cause significant volatility
2. Personal Income Less Transfer Payments
This measures income from wages, salaries, and other earnings, excluding government benefits like Social Security and unemployment insurance. It shows how much people are earning from actual economic activity.
- Released: Monthly by the Bureau of Economic Analysis
- Why it matters: Income drives consumer spending, which is 70% of GDP
- Trading impact: Moderate; helps explain consumer spending trends
3. Industrial Production Index
This measures the real output of manufacturing, mining, and utilities sectors. It captures the goods-producing side of the economy.
- Released: Monthly by the Federal Reserve
- Why it matters: Directly measures physical economic output
- Trading impact: Moderate; important for manufacturing-focused sectors
4. Manufacturing and Trade Sales
This measures the total sales by manufacturers, wholesalers, and retailers. It captures the flow of goods through the economy.
- Released: Monthly by the Census Bureau
- Why it matters: Shows actual transaction activity across the economy
- Trading impact: Lower; often overshadowed by retail sales data
Coincident Index in Action
During the 2020 recession:
- February 2020: Coincident index at 108.2 (pre-pandemic peak)
- April 2020: Coincident index dropped to 96.4 (-11% in two months)
- December 2020: Coincident index recovered to 103.8
- August 2021: Coincident index exceeded pre-pandemic level
The coincident index confirmed the severity and speed of both the recession and recovery.
How to Use Coincident Indicators in Trading
Confirming Economic Conditions
Use coincident indicators to verify what leading indicators are predicting. If leading indicators suggest a slowdown but coincident indicators remain strong, the economy may still have runway before trouble arrives.
Sector Rotation Decisions
Different coincident indicators affect different sectors:
- Strong employment: Favors consumer discretionary, retail
- Strong industrial production: Favors industrials, materials
- Rising personal income: Favors housing, autos, big-ticket items
- Weak coincident data: Favors defensive sectors, utilities, healthcare
Timing Entry and Exit
Coincident indicators help with market timing:
- When coincident indicators are falling, be more defensive
- When they stabilize and start rising, consider adding risk
- Use the trend, not just the level, for decision-making
Important: Coincident indicators are released with a lag of 1-2 months. By the time you see the data, it reflects conditions from weeks ago. Combine with more timely leading indicators for a complete picture.
Comparing Leading, Coincident, and Lagging Indicators
Understanding the relationship between these three types helps you build a complete economic picture:
| Type | Purpose | Examples |
|---|---|---|
| **Leading** | Predict future conditions | Yield curve, building permits, stock prices |
| **Coincident** | Show current conditions | Employment, income, industrial production |
| **Lagging** | Confirm past trends | Unemployment rate, corporate profits, CPI |
The NBER and Recession Dating
The National Bureau of Economic Research (NBER) uses coincident indicators as key inputs for officially declaring recessions. Their Business Cycle Dating Committee looks at:
- Depth of the decline in economic activity
- Duration of the decline
- Diffusion across different sectors
This is why recessions are often declared months after they begin - the committee waits for coincident data to confirm the downturn is significant and broad-based.
Recession Dating Example
The 2020 recession officially:
- Started: February 2020
- Declared by NBER: June 8, 2020
- Ended: April 2020
- End declared by NBER: July 19, 2021
The 4-month delay in declaring the start and 15-month delay in confirming the end shows why traders cannot rely solely on official determinations.
Real-Time Tracking Tools
Several resources help traders monitor coincident indicators:
- Conference Board CEI: Monthly composite index
- Federal Reserve Economic Data (FRED): Free access to all component data
- Atlanta Fed GDPNow: Real-time GDP estimate updated frequently
- Weekly Economic Index: Higher-frequency coincident measure
Limitations of Coincident Indicators
Keep these limitations in mind:
- Publication lag: Data is weeks old by the time it is released
- Revisions: Initial estimates are often revised significantly
- No predictive power: They tell you where you are, not where you are going
- Backward-looking by nature: Markets move before these indicators turn
Track Economic Data and Your Trades
Pro Trader Dashboard helps you correlate your trading performance with economic conditions. See how your strategies perform across different economic environments.
Summary
Coincident indicators provide a real-time snapshot of economic conditions. The four main components - employment, personal income, industrial production, and sales - move together with the business cycle. While they lack predictive power, they help confirm economic conditions and validate signals from leading indicators. Use them alongside leading and lagging indicators for a complete economic picture.
Want to learn more? Read about leading economic indicators or explore lagging indicators.