What is a Lagging Indicator?

Lagging Indicator Definition. Lagging indicators generally change after the economy as a whole does, and therefore, have little predictive value. Typically the lag is a few quarters of a year. The unemployment rate is a lagging indicator. Employment tends to increase two or three quarters after a recovery from a period of negative growth in the general economy. In technical analysis, Bollinger bands and moving averages are some of the various lagging indicators in frequent use today. In a performance measuring system, profit earned by a business is a lagging indicator as it reflects historical performance. Leading indicators tend to react before a trend begins, and coincident indicators change during a trend. The Index of Lagging Indicators is published monthly by The Conference Board, a non-governmental organization, which determines the value of the index from seven economic variables that tend to follow changes in the overall economy. The components are average duration of unemployment, the value of outstanding commercial and industrial loans, changes in the Consumer Price Index for services, changes in labor cost per unit of output, the ratio of manufacturing and trade inventories to sales, the ratio of consumer credit outstanding to personal income, and the average prime rate charged by banks.

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