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Difficulty: EasyEconomic Indicators and Business Cycle Phases

An economic analyst is reviewing macroeconomic metrics to confirm and measure past business cycle trends rather than predict future activity. Which of the following is classified as a lagging economic indicator?

  1. A
    Building permits for new private housing units
  2. Average duration of unemploymentAnswer
  3. C
    S&P 500 stock index prices
  4. D
    Average weekly initial claims for unemployment insurance

Answer

Average duration of unemployment
The average duration of unemployment is a classic lagging indicator because it confirms the direction of the business cycle after economic turns have already occurred. Employers typically wait until an economic expansion is well established before reducing long-term unemployed headcount.

Step-by-Step Solution

1
Define the characteristic of a lagging economic indicator.
Lagging indicators change after the broader economy has already entered a new business cycle phase, confirming past trends.
The scenario requires identifying an indicator used to evaluate historical trends rather than forecast future shifts.
2
Categorize each option into leading, coincident, or lagging indicator groups.
Building permits, stock prices, and initial unemployment claims are leading indicators. The average duration of unemployment is a lagging indicator.
Unemployment duration remains elevated even after an economic trough has passed and recovery has begun.

Key Concept

Classification of Leading vs. Lagging Economic Indicators
Estimated Time:45s
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Topics

Economic Indicators and Business Cycle Phases

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