If you watch the news or read the paper, you’ve probably seen or read news reports about the unemployment rate. Sometimes the news reports are concerned about the increasing unemployment rate, and other times it’s good news – the unemployment rate is falling. However, while the unemployment rate can be reported quickly, and most people understand why it is an essential barometer for the economy, economists have discovered that it is much more complex than simply the percentage of people out of work.
Unemployment is a Lagging Indicator
Unemployment is a crucial indicator of how an economy is performing. As a trade or investor, you need to take notice of changes in unemployment levels.
Unemployment tends to be looked at as a lagging indicator. Unemployment will usually increase in response to an already deteriorating economy, as employers tend to lay off their workforce when a downturn in their business starts setting in.