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Indicators offer a look at emerging trends

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Although predicting the future is difficult, economists and statisticians have devised tools to help provide early warnings of change in the business cycle.

These ‘leading indicators’ measure the economic decisions people and companies make based on many factors, including what their financial situation might be a few months from now. For example, families are less likely to spend a lot of money on big-ticket household goods if they are unsure about their jobs or the state of the economy.

So, Statistics Canada tracks sales of furniture, appliances and other durable goods as leading indicators of household sentiment—how confident Canadians are about their economic situations. Their confidence affects consumer spending, which is a major contributor to economic health. In June 2008, retail sales of furniture and appliances rose 0.3% and sales of other durable goods, 0.5%, suggesting that the job market was healthy and that families were confident enough to buy big-ticket items.

Similarly, if manufacturers see signs of a spending slowdown, or fewer orders arriving, they may curb their employees’ hours of work. After averaging 38.1 hours per week in the first three months of 2008, employees worked slightly less in April and May.

Other popular leading indicators include the housing index (measures new housing starts and existing home sales), the stock market and inventories.

The composite index, which combines 10 leading indicators, uses a five-month moving average to smooth out irregular fluctuations and revisions in the index. This allows users to better judge what it is signaling about the underlying trend of the economy in the months ahead.