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Lagging Indicator

Trading Term

A lagging indicator is an economic or financial metric that reflects changes after the broader economy or market has already begun to follow a trend. These indicators confirm patterns that have already taken place and are useful for validating whether a predicted economic shift—such as a recession or recovery—has actually occurred. Because they trail behind real-time activity, lagging indicators are less helpful for forecasting but are valuable for confirmation and analysis.

Common lagging indicators include the unemployment rate, corporate profits, consumer price index (CPI), interest rates, and outstanding loans or credit levels. For instance, unemployment often continues to rise even after a recession has technically ended, as companies take time to resume hiring. Similarly, inflation trends may become fully visible only after a period of sustained economic growth or contraction.

In practical use, economists and investors pair lagging indicators with leading and coincident indicators to build a more complete picture of economic health. While lagging indicators cannot predict turning points on their own, they provide reassurance that a trend is real and not just temporary market noise.

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