Lagging indicators are statistics that follow an economic event. You use them to confirm what has recently happened in the economy and establish a trend.
The best way to use lagging indicators is in conjunction with the two other types. They predict new phases in the business cycle. They tell you what is happening right now.
Most people don't bother looking at lagging indicators. They help you make sure you are reading the trends right. That's because it tracks the stock performance of companies that ship our nation's goods. Once manufacturers fill the durable goods orders, they have to ship it to customers. There's a lag between the order and the shipments. If the Transportation Index rises, it means customers haven't canceled their orders. Once people start to lose their jobs, the economy has already begun declining.
That's because the last thing employers want to do is let people go. Unemployment will also continue to rise even after the economy has started to improve.
That's because companies wait until they believe the economy has recovered before they start hiring again. People base their feelings about the economy on how easy it is to find jobs. Usually, it doesn't become difficult to find work until after the economy has turned negative. It weights seven lagging indicators to create the index. Here's a list of the Conference Board's indicators. It's the most comprehensive list of useful indicators that economists follow. A quick summary explains why each is useful, and its weight in the Index.
Updated August 28, Consumer Debt to Income Ratio. Personal income is reported by the Bureau of Economic Analysis. After a recession, consumers cautiously hold off accumulating debt even though their income starts to rise. Consumer Price Index for Services. Service providers may raise prices at the beginning of a recession to maintain profit margins as demand falters. Once the recession hits, they are forced to cut costs and lower prices.
They may keep cutting prices, even once the recovery has begun. Those that remain after a recession are likely to continue lowering prices. They don't recognize when the recession is over.More...