Composite Leading Indicator (CLI)
Economic forecasting is an intricate science. Many organizations attempt to generate accurate, reliable, and informed predictions by employing diverse indicators.
The Composite Leading Indicator (CLI) is one of the crucial economic indexes that takes a different approach from the crowd. It calculates short-term economic movements using qualitative, rather than quantitative indicators.
The CLI is calculated based on multiple indicators that are logically connected to the health of the overall economy, including factors that signal changes in consumption habits and business investments. Because changes in these factors are often observed before fluctuations in the overall economy, they can be used as the basis for CLI predictions.
One example is the inclusion of the Purchasing Managers Index (PMI), which is a measurement of changes in the manufacturing sector. The PMI indicates whether the number of manufactured goods orders is increasing or decreasing, thus signaling the economy's health.
The CLI index provides clear signals of turning points in business cycles and shows fluctuation patterns of economic activity. It is designed to anticipate future economic changes, usually within six to nine months ahead. A rising CLI suggests an upturn in economic activity, and vice versa.
The Organization for Economic Co-operation and Development (OECD) is one of the most prominent organizations responsible for calculating and publishing CLIs. The results are offered to individual countries as a valuable tool for understanding global economic trends.
By reflecting changes in economic activity ahead of time, the CLI aids in strategic decision-making and planning for businesses, economists, and policymakers.
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