CFA Level IEconomicsMedium
An economist notes that real GDP growth turned positive last quarter, marking the start of an economic recovery. Which of the following indicators would most likely continue to worsen for several more months even as the recovery proceeds?
- AStock market index levels
- BAverage weekly hours worked in manufacturing
- CThe unemployment rate
- DNew building permits issued
Show answer & explanationAnswer & explanation
Correct answer: C. The unemployment rate
The unemployment rate is a lagging indicator: firms are typically slow to rehire until they are confident the recovery is durable, so unemployment keeps rising (or stays elevated) even after GDP growth resumes. Stock prices, building permits, and average hours worked are all leading indicators that tend to turn upward before the broader recovery is confirmed.
Why the other options are wrong
- A. Incorrect—stock prices are a leading indicator and typically rise before the recovery is confirmed.
- B. Incorrect—average hours worked is a leading indicator, often increasing before hiring resumes.
- D. Incorrect—building permits are a leading indicator, rising ahead of an upturn.
Lagging Economic Indicator
An economic variable that changes direction after the overall economy has already turned, confirming a trend rather than predicting it.
- Unemployment rate is a classic lagging indicator
- Lagging indicators confirm cycle turning points
- Contrasts with leading indicators (e.g., permits, stock prices)
Memory trick: Jobs are the last to know — unemployment lags the recovery.