Legal Definitions - lagging indicator

Definition: A lagging indicator is an index or average that shows a correlation to market trends or economic conditions, but only after the change has already occurred. It is used to analyze past market performance.

Examples: One example of a lagging indicator is the unemployment rate. It is a measure of the number of people who are unemployed and actively seeking employment. However, it only reflects the state of the job market after people have already lost their jobs. Another example is the GDP (Gross Domestic Product) which measures the total value of goods and services produced in a country. It is a lagging indicator because it is only reported after the end of a quarter or year.

Explanation: Lagging indicators are useful for analyzing past market performance and identifying trends. However, they are not as useful for predicting future market changes. The examples illustrate how lagging indicators reflect past economic conditions rather than current or future conditions. For example, the unemployment rate may continue to rise even after the economy has started to recover, making it a lagging indicator.