There are indicators that tell you about the economy in advance

STEP 1The three time frames of indicators

Economic indicators do not all speak about the same time. Some numbers tell you about a few months from now, some about right now, and some about what has already passed.

Why do some numbers move first?

Picture in order how a company makes and sells goods, and the reason becomes clear. When signs of an improving economy appear, companies first increase orders, buy raw materials and bring in factory machinery. Then actual production and sales rise, and last, they hire more people and wages and service prices go up.

So numbers close to 'decisions,' such as orders, sentiment and interest rates, tend to move first, 'activity' itself, such as production and sales, moves together with the economy, and 'results,' such as employment, inventories and prices, tend to move late. That is because companies do not lay people off right away when the economy worsens, and when it improves they put off hiring until they are confident.

Korea's official composite economic indexes

Korea's national data agency (formerly Statistics Korea) bundles 19 indicators every month and releases three composite indexes: leading, coincident and lagging. If you look at the component indicators, you can see the order described above.

Source: Korea's national data agency, explanatory notes on the Composite Economic Indexes (based on the 10th revision of September 2019, 2020=100). Checked 2026-10-05.

There is one thing worth noticing. KOSPI is included among the leading indicators. In effect, the official statistics themselves acknowledge that stock prices move before the economy does. This question is revisited in STEP 3.

See it in a chart: the time lag of the three indicators

Below is a simple drawing of the three indicators following a single business cycle. Move the bar below to let time pass. Even on the same day, the three indicators describe different states of the economy.

STEP 2Reading the PMI and the leading index

In STEP 1, you learned that there are 'indicators that move first.' Now let's read the two that investors watch most, the PMI and the leading index.

PMI: a survey of purchasing managers

The PMI (Purchasing Managers' Index) is made by asking purchasing managers, the people who buy raw materials and parts at companies, the same questions every month. 'Compared with last month, have new orders increased, stayed the same or decreased?' They are asked about production, employment, delivery times and inventories in the same way. Purchasing managers are the people inside a company who first feel changes in orders, so their answers are a preview of production a few months ahead.

The method of turning the answers into a number is simple. This kind of method is called a diffusion index.

1. ResponsesImproved 30%, same 50%, worsened 20%
2. Calculation30 + 50 × 0.5 = 55
3. ReadingMore companies improved than worsened → expansion

So the PMI tells you not 'how good the economy is' but 'whether more companies improved than last month.' A PMI of 52 does not mean 'very good,' but that 'slightly more companies are getting better.' In the US, the Institute for Supply Management (ISM) releases the manufacturing PMI on the first business day of each month, and in Korea, S&P Global releases it at the start of each month.

See it in a chart: build a PMI yourself

Change the survey response shares. 'Same' is calculated automatically from the remainder.

How the actual PMI has moved

In April 2020, at the height of the COVID lockdown, the PMI fell to 41.5, but a year later in March 2021 it was 64.7, the highest since 1983. In November 2022, as rate hikes continued, it fell to 49.0, below 50 for the first time since May 2020. Interestingly, in the same report ISM explained that 'when the PMI stays above 48.7, the overall economy generally grows.' A manufacturing PMI falling below 50 does not immediately mean the whole economy is in recession.

The leading index: 100 and its direction

The leading index bundles several leading indicators into one. In Korea, people often watch the national data agency's cyclical component of the leading index, and for international comparison the OECD Composite Leading Indicator (CLI). For both, 100 is the long-term trend line. Above 100 means the economy is on the better side of its usual path, and below means the worse side.

What investors pay more attention to than the level is the direction. If the index is below 100 but has been rising for several months, it is read as a sign the economy is passing its bottom, and if it is above 100 but has started to turn down, it is read as a sign the economy is passing its peak.

STEP 3How far ahead did it actually move?

Now that you know the theory, let's check it against real data. Did Korea's leading index really move ahead of production?

18 years of Korea: the leading index and industrial production

In the chart below, the blue line is Korea's Composite Leading Indicator calculated by the OECD (100 = long-term trend), and the black line is the YoY growth in Korean industrial production (3-month average). Industrial production is a representative coincident indicator showing how much factories are actually producing. Use the bar below to push the blue line back by a few months. The point where the two lines overlap best is the 'average lag.'

When you move the bar from 0 months to 4–5 months, the correlation rises from about 0.49 to 0.71. This means that in Korea over 2006–2024, the leading index moved 4–5 months ahead on average of industrial production growth. The 2008 financial crisis is a good example. The leading index hit bottom in October 2008 (96.7), but industrial production growth only bottomed four months later, in February 2009 (3-month average −18.7%). In the recovery too, the leading index peaked in November 2009, and industrial production growth peaked in February 2010.

But it is not always so. In the 2023 semiconductor downturn, the leading index and industrial production growth bottomed together in the same month, February 2023. The lag is only an average and does not appear at the same interval every time.

Shall we look at the latest values too? Korea's OECD Composite Leading Indicator was 102.87 in August 2026, above 100 and rising for several months (May 102.38 → August 102.87). The S&P Global Korea manufacturing PMI was 52.3 in August 2026. However, recent figures are provisional and may be revised. Sources: OECD (FRED), Trading Economics. Checked 2026-10-05.

For stocks: stock prices are the fastest leading indicator

Do you remember that stock price is a component of Korea's leading index? In Lesson 1, you learned that stock prices reflect 'future earnings.' Investors see PMI new orders or the leading index passing its bottom and buy stocks in advance, before actual results improve. That is why stock prices move similarly to or faster than the leading index, and sometimes start rising just when the news says the economy is at its worst. This question is covered in more depth in Lesson 34.

The US ISM PMI is released on the first business day of each month, and Korea's composite economic indexes are released at the end of each month together with industrial activity trends. You can find release schedules in the Earnings & Economic Indicators calendar, and which sectors the current phase of the economy favors on the Macro Map.

This is not always the case. Leading indicators only tell you about 'possibilities,' and no indicator can warn in advance of shocks such as policy changes or wars. It is important to build the habit of checking whether several indicators point the same way, rather than relying on one.