A country’s economy dictates many factors, including how businesses or investments perform. Therefore, it is crucial for investors to consider these factors to make well-informed decisions. For that, they need to identify some economic indicators. However, it is crucial to understand what economic indicators first.
What are Economic Indicators?
Economic indicators are metrics that measure and analyze current or future investment possibilities. By doing so, they look at a nation’s health of macroeconomy. For investors, these indicators are crucial as they dictate the systematic risk that affects their investments. There are many economic indicators that may exist, usually categorized into several categories.
The primary economic indicator for any nation is its gross domestic product (GDP). It is a type of coincident indicator. Apart from GDP, consumer confidence index, consumer price index, new housing starts, money supply, personal income, etc., are economic indicators examples. All of these measures a nation’s economic health based on the timing of fluctuation in economic activity.
What are Lagging Economic Indicators?
Lagging economic indicators are any economic indicators that measure fluctuations in economic activity after they occur. It is why it gets the name ‘lagging’, as it does not indicate changes until after they happen. For most investors, lagging economic indicators are a method to look at historical performances. However, these indicators are not beneficial in predicting future economic outcomes.
Lagging economic indicators are quantifiable metrics. However, they only change once the associated economic or financial variables change. These indicators benefit investors as they allow investors to establish a trend in a nation’s economic activity. Based on that, they can make decisions related to their investments.
Lagging economic indicators also have other uses. They are helpful tools in business operations and strategy. These indicators usually confirm patterns that occur over time. They also help identify when there is a change in a country’s business cycle. Some investors may consider lagging economic indicators to be futile. However, used with other economic indicators, lagging economic indicators can be significantly beneficial.
What are the types of Lagging Economic Indicators?
There are several economic indicators that classify as lagging. These indicators only identify economic activity fluctuations after they occur. Therefore, they fall under the lagging economic indicators category. Some of the types of lagging economic indicators are as below.
Unemployment is one of the primary types of lagging economic indicators. It is when people in an economy lose their jobs. Unemployment also stems from not having enough jobs while workers are available. Unemployment exists during all stages of a business cycle.
Consumer Confidence Index
Another lagging economic indicator that people consider is the Consumer Confidence Index. It measures people’s attitude toward the economic conditions prevalent in a country, whether future or current. This index represents people’s trust in the economic conditions.
Gross National Product (GNP)
The gross national product is also a lagging economic indicator. It represents an estimate of the total value of all final products and services produced by the residents of a specific country. It differs from the GDP, which does not require the product to be from residents.
Economic indicators measure a country’s economic health. These are beneficial for investors to base their decisions. There are several types of economic indicators. Lagging economic indicators only measure economic events after they occur. These may include the unemployment rates, consumer confidence index, gross national product, etc.