Certification in Supplier Diversity Practice Exam

Which of the following is considered a leading economic indicator?

1. Unemployment rate

2. Bond yields

3. Consumer spending

4. Gross Domestic Product (GDP)

The correct answer is: Bond yields

Bond yields are considered a leading economic indicator because they reflect investor expectations about future economic activity. When bond yields rise, it often suggests that investors anticipate stronger economic growth and potential inflation, prompting them to demand higher returns for the risk of holding bonds. Conversely, falling bond yields may indicate expected economic slowdown or lower inflationary pressures, as investors seek the security of bonds over equities. Leading indicators, like bond yields, typically provide foresight about the direction of the economy, making them valuable for forecasting future economic performance. Other indicators, such as the unemployment rate, consumer spending, and Gross Domestic Product (GDP), are considered lagging or coincident indicators; they tend to reflect the current or past economic conditions rather than predict future changes.