Since we’re on the topic of recessions (and probably will be for a while), let’s dive into lagging indicators and their role during an economic downturn.
Lagging indicators are delayed economic measurements, like someone giving you a weather report after you’re already drenched—you know it was raining, and now you also know the details of how much precipitation fell or how strong the winds were blowing.
- They help you understand how the economy got to its current state after a big event, but they can’t measure anything in real time or predict the future.
Here are a few indicators to watch
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Unemployment rate: This is one of the most closely-watched lagging indicators. If unemployment rises steadily over several months, it usually means the economy is slowing down. Right now, the unemployment rate in Canada is at historic lows.
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Inflation: The inflation rate measures price changes that have already happened, making it a lagging indicator. High inflation generally (but not always!) happens when the economy gets “overheated,” and people try to buy more than businesses can produce. Inflation in Canada is still high but may be moderating slightly, suggesting the economy is starting to cool.
- Corporate profits: Corporate profits are reported after the fact and, as such, are another lagging indicator. Strong corporate profits typically indicate a growing economy, while falling profits suggest a downturn. (Though this is only sometimes the case, as certain businesses can perform better during difficult economic times.)
So what does all this mean? It’s pretty hard to say at the moment. Lagging indicators are sending mixed signals right now—some suggest a recession is inevitable (or perhaps already here), while others offer a glimmer of hope for a soft landing.