In economic analysis, what is the purpose of tracking leading indicators?

The purpose of tracking leading indicators in economic analysis is to predict future economic activity. Leading indicators are statistical measures that typically change before the economy starts to follow a particular pattern or trend. These indicators provide valuable insights into where the economy is headed by offering early signals of fluctuations in economic performance. For instance, changes in consumer confidence, stock market performance, or new housing permits can suggest upcoming shifts in economic conditions, such as growth or recession. This predictive capability allows economists, policymakers, and investors to make informed decisions based on anticipated economic trends.

While assessing historical trends, evaluating government policies, and measuring market sentiment are important in their own right, they do not serve the specific role of forecasting future economic scenarios, which is the primary focus of leading indicators.