CFA Level I · CFA Level I Exam · Understanding Business Cycles
Which labor market indicator is most likely to lag the business cycle, continuing to rise after a recession has ended?
The unemployment rate is the lagging indicator. Firms are slow to hire after a recession, preferring to use overtime and existing staff first, so unemployment can keep rising or stay high after output recovers. Hours worked and initial claims turn earlier.
- AThe unemployment rateCorrect
- BAverage weekly hours worked
- CInitial claims for unemployment benefits
Explanation
Firms first adjust hours and rehire cautiously, so unemployment often keeps rising or stays high after output starts recovering. Hours worked and initial claims tend to lead or turn earlier with the cycle.
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