7 of The Best Lagging Economic Indicators
Forex Blog Articles
Part 2 of Our Comprehensive List of the Most Powerful Lagging Signals
Our previous article (part 1), 7 of the Best Leading Economic Indicators described how to predict where the market is heading. Now, in this article we will discuss the top lagging economic indicators. These indicators allow investors to get ahead of movements and prepare themselves for market evolutions and are also shifts that happen after the market has changed. So, while they can’t be used to predict future moves like the Leading Indicators – they are worth investing your time into understanding and identifying these long term trends.
As mentioned in Part 1, only relying on the analysts’ advice is not always the way to go. It’s important as a professional trader to be able to read the same information and draw your conclusions based on these leading and lagging signals. And while this won’t necessarily protect you from poor forecasts, it will give you a sense of autonomy and power to have a firmer grip on your finances and the future of your investments.
The seven best lagging indicators for predicting the future movements of the market:
A strong currency shows a country’s:
- Excellent buying and selling power.
- Ability to sell goods at higher prices and import foreign ones for cheaper.
However, there are benefits to a weak currency also. Such as:
- Increase in tourism because it is cheaper to purchase goods out of their home country.
- Encouraging countries to buy more products from another country because the price is lower and cheaper.
- Also known as the Consumer Price Index.
- The opposite of inflation can lead to depression.
- Represents increases in the cost of living.
- A very high inflation rate can decrease the value of a currency. It can happen faster than people can compensate through their earnings – may result in a decrease in purchase power and a drop in the standard of living.
- Moderate inflation can be positive for an economy – able to generate spending and investing and also, keep interested rates moderately high.
Gross Domestic Product (GDP) Fluctuations
- GDP is considered to be one of the most important.
- If GDP increases – it means the economy is probably healthy and doing well.
- However, the reality is not always apparent – GDP can be manipulated to appear artificially high.
- Governments can use tools such as quantitative easing to keep the economy afloat and not reveal the real value.
Equity of Trade
- Ideally, a country wants to be in a trade surplus – more money entering than leaving.
- If there is a high trade surplus – it is a sign of the country not taking full advantage of its position to trade in a global economy.
- If low or redundant trading – possibility of debt and depreciation of the currency
- Remains as a lagging signal whether in excess or redundant.
- Indicates the amount of what it costs to borrow money.
- Depict the strength of the economy.
- These rates fluctuate based on the market and economic events.
Salaries and Earnings
- Earnings should increase as the cost of living increases.
- If earnings decrease – shows the reduction of employees, salaries, and hours – even in a healthy economy, businesses will take precautions by doing so.
- A key indicator of the strength of the economy.
- Indicates in percentage: the number of people looking for employment in the entire workforce.
- A healthy economy has an unemployment rate between 3% to 5% – anything higher indicates that people have less money to spend, and government resources stretch widely, and social assistance programs are in higher demand.
- Unemployment rates could usually be significantly higher because the actual measured rate only reflects people who have sought after work in the previous four weeks to the calculations.
- Part-workers or casuals are considered as employed in the bracket.
Lagging Economic Indicators – Conclusion
These indicators are the main tools to use for reading market trends. But, they are subject to antics which mislead traders. Use your best judgment, consult someone for additional confirmation, and always be prepared for sudden movements.
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