Economic data points that change after the broader economy has already shifted — confirming trends rather than predicting them.
Deeper Explanation
Lagging indicators include unemployment rate, corporate earnings, and bank bad debt ratios. They confirm what has already happened. Unemployment peaks after a recession has ended (companies are slow to hire back); corporate earnings trough after the economic bottom (the operating leverage works in both directions). Lagging indicators are treacherous for investors because they look worst at exactly the moment the cycle is turning — maximum unemployment and minimum earnings coincide with the best buying opportunities. The investor who waits for lagging indicators to confirm a recovery misses most of the upswing. Leading indicators predict; lagging indicators confirm; the art is to act on leading indicators while remaining humble about their fallibility.
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