What are the meanings of economic terms such as procyclical and lagging?
Gross Domestic Product (GDP), for example, is a procyclical economic indicator, that is, if an economy is healthy and growing, so the figure for this will be rising. An economy in recession will therefore show shrinkage, and the Q4 US figure is expected to be around -0.8% versus the previous quarter’s -0.5% when announced next week. Incidentally, next week’s US unemployment figures are known as a countercyclical economic indicator as the economy worsens, so the figure rises. Unemployment figures are also a lagging indicator, one not changing direction until after the economy does. As a general rule, unemployment tends to continue rising for two or three quarters after the economy starts to improve, as industry begins to pick up apace. This leaves the other important economic gauge the leading indicator. This changes ahead of the economy and can therefore prove extremely useful in an environment such as the one in which we find ourselves. Leading indicators may take the form of business
