They can define and validate a pattern that develops through time. One of the most dependable lagging indicators is the unemployment rate. If the unemployment rate increased from the previous month to this month, it means that the overall state of the economy has been poor and could go worse.
How is the unemployment rate impacted by the business cycle?
During business cycle recessions, unemployment rises, and during cycle expansions, it falls (recoveries). When there is a recession, inflation falls, and when there is an upswing, it rises (recoveries).
However, two factors that indicate quite different performance can cause the unemployment rate to decline: either 1) more individuals are finding work, which is good; or 2) more potential employees are leaving the labor force and giving up looking for work, which is often bad.
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