What is a composite Index of Lagging indicators
The composite Index of Lagging indicators is an index published monthly in the conference Boardused to evaluate the direction of the economy in recent months.
This lagging indicator is a factor that varies according to a certain pattern or trend in the economy. Traders look at lagging indicators as a means to evaluate or confirm the strength of this trend.
The composite index consists of the following seven economic components, whose changes tend to come after changes in the economy as a whole:
- The value of outstanding commercial and industrial loans
- The change in the consumer price index for services compared to the previous month
- The change in the cost of labor per unit of labor
- The ratio of manufacturing and trade inventories for sale
- The ratio of consumer loans to personal income
- The average rate charged by banks
- The inverted average length of employment
The destruction of the composite index of Lagging indicators
The composite Index of Lagging indicators, given that it measures the economic activities of previous months, is used as after-the-fact way to help confirm the estimates of economists in modern economic conditions. For this purpose, the composite Index of Lagging indicators is best used in combination with the composite coincident index and the composite index of leading indicators.
Lagging indicators and the overall picture
The organization supports several composite indices, the tracking including leading, coincident, and lagging indicators to help to offer a permanent resource on the state of the U.S. economy.
“They are constructed by averaging their individual components in order to smooth out a large part of the volatility of individual series,” according to the conference Board. “Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, cyclical turning points in leading indicators occurred around the same time as aggregate economic activity, cyclical turning points in the lagging indicators generally occurred after total economic activity.”
Lagging indicators can be complex, and can sometimes tell more about the future of the economy, not about the past and Bloomberg noted in the article, 2018. It started with the good news that in April the unemployment rate of 3.9 percent was a 17-year low.
“For economists, the unemployment rate has always been a lagging indicator,” Stephen Mihm wrote. “It’s like looking in the rear view mirror. He tells us where the economy was in the not too distant past.
“But it is possible to look at unemployment as an indicator, if rather perverse one,” he explained. “If you look at the relationship between the unemployment rate and the last 10 recessions in the US, it’s amazing how quickly the recession to follow in the Wake of the economy hitting full employment.”
Indeed, Mihm wrote, “one commenter, who all counted on a 10 recessions that hit in 1950, found that the average time between the troughs of the unemployment rate and the onset of recession was approximately 3.8 months, with three recessions, starting a month after unemployment reached its lowest level; the longest gap was 10 months with a low unemployment rate. But this relationship, of course, depends on hindsight: we know that we got through in retrospect.”