Lagging Economic Indicators
Metrics that confirm economic trends after they have already begun, providing backward-looking validation of turning points.
What is Lagging Indicators?
Lagging economic indicators are statistical measures that change after the broader economy has already turned a corner, confirming that a trend has occurred rather than predicting it. Because they reflect the accumulated effects of past economic conditions, lagging indicators are useful for verifying the turning points and duration of economic cycles identified by leading indicators. The US Conference Board publishes a Lagging Economic Index (LEI) composed of seven components: the average duration of unemployment, inventories-to-sales ratio in manufacturing and trade, the change in the CPI for services, outstanding commercial and industrial loans, the prime lending rate, outstanding consumer installment credit to personal income ratio, and commercial and industrial loan interest rate. Common individual examples include the unemployment rate, corporate profits, the consumer price index, and outstanding business loans.
Example
During the 2007–2009 Great Recession, the US unemployment rate reached its peak of 10.0% in October 2009—fully ten months after the NBER officially dated the recession's end in June 2009. This delayed peak is a textbook example of a lagging indicator: businesses are reluctant to hire until they are confident the recovery is durable, so unemployment keeps rising and then falls slowly even after GDP has resumed growing.