Real economic activity leading indicators: Should we have paid more attention?

The ability to predict business cycle activity is an invaluable skill for governments and policy makers alike, especially before an economy enters a downturn. We analyse causality relationships between key leading economic indicators and economic growth for three countries from 1970 to 2010. We find that while many indicators do not help explain current movements in GDP growth, lags of these indicators do. In addition, the direction of the change and the size of the change in the lagged economic indicators are very important in many cases. This is particularly true for housing indicators.