Understanding the 'Lagging' aspect of Economic Indicators
Been following the market for a little while now, trying to piece together how various economic reports actually influence price action beyond the immediate headlines. I get that something like $CPI or NFP is released and there's an instant reaction, but then analysts often talk about how these are 'lagging indicators.'
My confusion is this: if they're lagging, implying they reflect past conditions, why do they still seem to have such a significant impact on forward-looking assets and central bank policy decisions? For example, a strong NFP suggests a healthy past labor market, but then the Fed might hike rates based on that. Is it simply that even if they're backward-looking, they're the best data points we have available to infer current trends, or am I missing a more nuanced interpretation?
Ah, the classic 'leading vs. lagging' dance. It's like checking your rearview mirror to predict where you're going – helpful for understanding where you've been, less so for avoiding the pothole directly ahead. But hey, at least we know what we just hit, right?