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Leading indicator

As explained in Demand Forecasting Best Practices

A leading indicator is a variable whose current or earlier movement provides information about a later outcome such as future demand.

A leading indicator is a macroeconomic or business signal that affects demand after a delay. Its current state can therefore give an earlier view of future demand, helping planners forecast before the outcome appears in sales history. section 14.2.1

Use a leading indicator when a demand driver is observable now but its commercial effect arrives later. Building permits, for example, can precede construction-project demand; an order book or collected preorders can signal near-term commercial success and support highly accurate short-term forecasts. section 14.2.1

Six-month demand lag

If an indicator consistently moves before demand by six months, its present value offers a six-month forecasting edge. The useful question is whether the observed relationship has a stable, actionable delay. section 14.2.1

Table 14.1 Main Demand Drivers (view table figure)

Driver

History

Future

Promotions

✅

❓ Planned for medium-term

Events

✅

✅

Marketing

✅

❓ Usually short-term only

Pricing

✅

❓ Usually short-term only

Shortages

✅

✅

Weather

✅

❓ Very short-term

Competition

❌

❌

Macroeconomic indicators

✅

❓ Works if leading indicators

Compare demand drivers by whether future information is available; macroeconomic indicators are useful when they function as leading indicators. section 14.2.1

How Demand Forecasting Best Practices covers it

How deep it goes
Defines delayed demand signals and illustrates them with permits, order books, and a six-month lag.
Examples
Uses processed building permits, business order books, preorders, and a six-month lag between indicator and demand.
What you can do after
Evaluate/understand it by identifying observable signals that precede demand over a useful forecasting horizon.
How it connects
Connects demand forecasting with macroeconomic indicators, demand drivers, scenario forecasting, and order books.
Cover of Demand Forecasting Best Practices
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