Composite Index of Coincident Indicators

What Is Composite Index of Coincident Indicators?

The Composite Index of Coincident Indicators is an index published by the Conference Board that provides a broad-based measurement of current economic conditions, helping economists, investors, and public policymakers to determine which phase of the business cycle the economy is currently experiencing.

Understanding the Composite Index of Coincident Indicators

The Composite Index of Coincident Indicators comprises four cyclical economic data series. These reflect (respectively) the useful employment of labor, income received by households, the industrial activity, and revenues received by businesses: 

1. Useful Employment of Labor: The number of employees on nonagricultural payrolls, as released by the Bureau of Labor Statistics. This statistic is often commonly referred to as "payroll employment." It counts both full-time and part-time workers, whether they may be permanent or temporary. Economists view this evaluation of net hiring and termination of a large segment of the industries that make up the labor force as a critical piece for determining the health of the economy.
2. Income Received by Households: The aggregate amount of personal income excluding transfer payments. Economists use this figure to determine how much people are actually earning. This figure is adjusted for inflation and covers income received from most earned sources of income. It excludes income received from Social Security payouts and some other government programs. Economists watch these numbers closely because income represents a basic dimension of economic health. Moreover, when people have more income with which to buy products and services, it benefits business, industry, and employment of the labor force. 
3. Industrial Activity: The Index of Industrial Production, published by the U.S. Federal Reserve, which measures the real output of mining, manufacturing, and utilities and represents the health of the industrial sector of the economy.
4. Revenues Received by Businesses: The level of manufacturing and trade sales. Economists rely on these figures, which are adjusted for inflation, to provide a true representation of actual spending. These statistics are pulled from National Income and Product Accounts calculations performed by the Bureau of Economic Analysis to calculate Gross Domestic Product (GDP). An important distinction of the figures used for those calculations is that some listings are counted more than once, which is why this total figure is generally higher than the GDP.

These four components are standardized to account for their magnitudes and volatility, and then they are combined into a composite index with the average value of the index for 2016 set equal to 100.

The Composite Index of Coincident Indicators and Other Indexes

Businesses and investors of all kinds, as well as many others, commonly use the Composite Index of Coincident Indicators to judge the economy's current position in the business cycle. This is important because when combined with other indicators it provides valuable insight to help make appropriate investments given the condition of markets. 

This index is often used also as a confirmation tool in conjunction with the Composite Index of Leading Indicators. The Conference Board also produces the Composite Index of Lagging Indicators. By looking at this trio of indexes as a whole, investors and analysts can get a more comprehensive picture of the overall economy and the state of its health.