Canadian Securities Course (CSC) Level 1 Practice Exam

Give some examples of lagging indicators.

1. Stock prices, housing stats, manufacturers new orders

2. Top of the cycle, demand begins to outstrip supply

3. Unemployment, inflation, labour costs

4. Interest rates fall, triggering bond rally

The correct answer is: Unemployment, inflation, labour costs

Lagging indicators are metrics that provide insights into economic performance after a trend has been established. They help confirm patterns or trends rather than predict future movements. Examples of lagging indicators include unemployment rates, inflation, and labor costs. Unemployment is a key lagging indicator because it typically rises or falls only after economic conditions have shifted. For instance, a rise in unemployment rates usually occurs after the economy has entered a recession. Inflation reflects the rate of price increase in the economy and tends to align with changes in economic activity rather than lead them. Labor costs, which encompass wages and benefits, increase in response to economic trends; businesses usually adjust their investment in labor after observing changes in demand and overall economic activity. The other choices consist largely of leading indicators (like stock prices and manufacturers' new orders) or situational indicators (like interest rate changes), which do not provide the confirmation of a trend that lagging indicators specifically indicate. Thus, the selection highlighting unemployment, inflation, and labor costs as lagging indicators is accurate and aligns with the definitions and characteristics of such economic indicators.