As the name suggests, a lagging indicator is an economic variable whose movements occur after movements in the overall economy.
a. A number of employment measures are lagging indicators. Consider the following variables:
(1) Increased use of temporary workers,
(2) Increases in new hires,
(3) A decline in the number of workers laid off, and
(4) An increase in overtime hours.
In an economic recovery from a recession, which of these variables would have the shortest and longest lags?
b. Top management of a company that produces luxury yachts has been waiting anxiously for the end of the recession and a resurgence in orders. Why might the company pay more attention to lagging indicators than to leading indicators? Explain.