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What are leading indicators in the context of forecasting?

  1. Future trends in any industry

  2. Business activity indexes that indicate future trends

  3. Indicators that measure past performance

  4. Market demand forecasts

The correct answer is: Business activity indexes that indicate future trends

Leading indicators in the context of forecasting are metrics that provide insights into future trends and movements in the economy or specific industries. They are predictive in nature, intended to signal potential changes before they are reflected in current conditions. The correct answer highlights that these indicators often take the form of business activity indexes, which can include metrics such as new orders, unemployment claims, and stock market trends. These indexes help businesses and economists anticipate future economic activity, enabling them to make informed decisions and strategies based on predicted changes. The focus on future trends distinguishes leading indicators from other types of metrics, such as those that measure past performance or current situations. These do not provide insight into what is likely to happen in the future. Market demand forecasts and general future trends in any industry can be influenced by leading indicators but do not encapsulate the specific function of indicating future trends through measurable indexes.