CFA Level I · CFA Level I Exam · Understanding Business Cycles
Which of the following is most likely a leading indicator of the business cycle?
Building permits for new private housing are most likely a leading indicator, since permits are issued before construction spending and output occur. The average prime lending rate and the consumer credit-to-income ratio change after the economy turns, so they are lagging indicators.
- AAverage prime lending rate charged by banks
- BBuilding permits for new private housingCorrect
- CRatio of consumer installment credit to income
Explanation
Building permits precede construction activity and so lead the cycle. The prime lending rate and the consumer credit-to-income ratio are standard lagging indicators.
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