6. BAROMETRIC METHOD The basic approach of barometer technique is to construct an index of relevant economic indicators and to forecast future trends on the basis of movements in the index of economic indicators. 6
7. The indicators used in Barometric Method Leading indicators Coincidental indicators Lagging indicators 7
8. Leading indicators consists of indicators which move up and down ahead of some other series. E.g. => (i) index of net business formation: (ii) New building permits: (iii) New orders for durable goods: (iv) Corporate profit after tax, etc.. 8
9. Coincidental indicators The ones that move up and down simultaneously with the level of economic activity. E.g.=> (i) number of employees in the non- agricultural sector: (ii) rate of unemployment: (iii) sales recorded by the manufacturing, trading and the retail sectors etc. 9
10. Lagging indicators Lagging indicators consists of those indicators which follow a change after some time lag. E.g. => (i) labour cost per unit of manufactured output: (ii) Out Standing loans: (iii) lending rate for short-term loans etc. 10
11. BUSINESS CYCLELeading indicators precede(Lead) Business cycles’ Turning points (i.e., peaks and troughs), coincident indicators move in step with business cycle, while lagging indicators follow or lag turning points in business cycle. 11
12. Barometric Example Development and allotment of land by Delhi Development Authority to Group Housing Societies (a lead indicator) indicates higher demand prospects for cement, steel and other construction material (coincidental indicators) and increase in housing loan distribution (lagging indicators). 12
13. DISADVANTAGE At best , Barometric forecasting is only 80 to 90 percent accurate in forecasting turning poing. 13
