Lagging Indicator
IntermediateA lagging indicator is an economic statistic that tends to change only after the overall economy has already changed direction, confirming trends rather than predicting them.
Lagging indicators reflect what has already happened. They are useful for confirming that a turning point in the business cycle has occurred and for understanding how strong or weak a trend has been.
Common examples include the unemployment rate, average duration of unemployment, corporate profits, outstanding consumer credit and some measures of inflation. For example, businesses often wait until a recovery is clearly under way before hiring new workers, so unemployment may keep rising for several months after the economy has started to grow again.
Lagging indicators help analysts avoid being misled by short-term fluctuations. If a leading indicator suggests a recovery, a later improvement in lagging indicators confirms that the recovery is real.
The third group, coincident indicators, move at roughly the same time as the economy. Examples include industrial production, personal income and retail sales. Economists use leading, coincident and lagging indicators together to build a complete picture of the economy's position in the cycle.
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