ABSTRACT
The leading indicators have enjoyed a long and, largely, a celebrated life. Though they have been the butt of criticism sometimes, they are the only forecasting methodology endorsed by the federal government. Throughout their existence, there have been two main criticisms of the "indicators" approach to forecasting and one that has arisen lately. Both criticisms are basic to the third and most longstanding of the criticisms of the indicators—that there is no well-articulated theory of what series should be indicators. The leading indicators work better, of course, partly because they have been the subject of considerable useful research and analysis. Inventories might also rise because sales did not meet expectations, but in contrast, that development might lead to production cutbacks undertaken to work off the initial, involuntary inventory rise. The fact that over half the indicators relate to goods production and distribution behavior indicates that those components, at least, do have a foundation in business cycle dynamics.
