Lagging Indicator
Quick Definition
An economic metric that changes after the economy has already begun to follow a particular trend, confirming rather than predicting patterns.
Key Takeaways
- Changes AFTER the economy has already shifted direction
- Confirms trends rather than predicting them
- Key examples: unemployment rate, corporate profits, CPI, labor costs
- Useful for validating that a trend identified by leading indicators is real
What Is Lagging Indicator?
Lagging indicators are economic statistics that change only after the economy has already shifted direction, serving to confirm trends rather than predict them. They are valuable for verifying that a trend identified by leading indicators has indeed materialized. Key lagging indicators include the unemployment rate (which continues to rise after a recession has technically ended), corporate profits, labor cost per unit of output, average duration of unemployment, consumer credit levels, and the CPI. While lagging indicators cannot help forecast turning points, they are essential for confirming the economy's current phase and validating policy decisions. The Conference Board maintains an index of lagging economic indicators as part of its composite indicator system.
Lagging Indicator Example
- 1The unemployment rate is a classic lagging indicator — it peaked at 10% in October 2009, four months after the Great Recession officially ended.
- 2Corporate profits typically don't recover until well after an economic expansion has begun.
- 3The average duration of unemployment continues to rise even as new jobless claims start falling.
Related Terms
Leading Economic Indicators
Statistical measures that tend to change before the overall economy shifts, used to predict future economic activity.
Economic Indicator
A statistical data point used to measure and assess the current state or future direction of economic activity.
Unemployment Rate
The percentage of the labor force that is jobless and actively seeking employment, a key indicator of economic health.
Business Cycle
The recurring pattern of expansion and contraction in economic activity, typically measured by changes in real GDP and employment.
CPI (Consumer Price Index)
A measure of the average change in prices paid by urban consumers for a basket of goods and services, used as the primary gauge of inflation.
GDP (Gross Domestic Product)
The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
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