Composite Index of Lagging Indicators

What Is the Composite Index of Lagging Indicators?

The Composite Index of Lagging Indicators is an index distributed month to month by the Conference Board, used to affirm and evaluate the bearing of the economy's developments over recent months.

Grasping the Composite Index of Lagging Indicators

The Composite Index of Lagging Indicators, given that it measures the economic activities of previous months, is utilized as a sometime later method for affirming financial experts' evaluations of current economic conditions. For this purpose, the Composite Index of Lagging Indicators is best utilized related to the Composite Index of Coincident Indicators and Composite Index of Leading Indicators.

A lagging indicator is a factor that changes after a particular pattern or trend in an economy has changed. Traders view at lagging indicators as a means to survey or affirm the strength of a given trend.

The composite index is comprised of the accompanying seven economic parts, whose changes will generally come after changes in the overall economy:

The average duration of unemployment measures the average number of weeks that jobless individuals have been unemployed. This series is inverted in light of the fact that periods of unemployment will generally protract during times of economic distress and shorten after an economic expansion gains strength.
The ratio of manufacturing and trade inventories to sales is incorporated to check business conditions since inventories will generally increase relative to sales when the economy eases back.
The change in labor cost per unit of output in manufacturing is incorporated to demonstrate when production falls relative to labor costs after an economic downturn.
The average prime rate charged by banks, which is utilized to determine rates for different types of loans. Changes in this rate will more often than not trail behind the overall economic performance.
The real (inflation-adjusted) dollar volume of outstanding commercial and industrial loans. This incorporates business loans held by banks and nonbank-gave commercial paper. This series lags behind the economy at business cycle defining moments since demand for short-term commercial credit will in general rise during initial periods of economic stress and afterward fall as deflation sets in.
The ratio of consumer installment credit outstanding to personal income gives a measure of indebtedness relative to income, which will in general rise after an expansion sets in and consumers become more certain about their ability to repay obligations later on.
The change in the Consumer Price Index for services, which will in general lag behind other price indexes.

Lagging Indicators and the Bigger Picture

The Conference Board keeps several composite indexes tracking, including leading, coincident, and lagging indicators, to assist with offering a continuous resource about the state of the U.S. economy.

"They are built by averaging their individual parts to streamline a decent part of the volatility of the individual series," as per The Conference Board. "By and large, the cyclical defining moments in the leading index have happened before those in aggregate economic activity, cyclical defining moments in the coincident index have happened at about a similar time as those in aggregate economic activity, and cyclical defining moments in the lagging index generally have happened after those in aggregate economic activity."

Features

The Composite Index of Lagging Indicators is a composite economic indicator that lags behind changes in the overall economic performance of the U.S.
The Composite Index of Lagging in Indicators comprises of seven parts that measure how unemployment, unsold inventories, and underutilized labor stack up after the economy drops into recession and how interest rates, credit conditions, and prices change after broad economic trends shift.
Lagging indicators are valuable to affirm the occurrence of economic defining moments and evaluate the strength of the recent fad.