Loading the player...

What is an 'Economic Indicator'

An economic indicator is a piece of economic data, usually of macroeconomic scale, that is used by analysts to interpret current or future investment possibilities or to judge the overall health of an economy. Economic indicators can be anything the investor chooses, but specific pieces of data released by government and non-profit organizations have become widely followed. Such indicators include but aren't limited to: the consumer price index (CPI), gross domestic product (GDP), unemployment figures and the price of crude oil.

BREAKING DOWN 'Economic Indicator'

Economic indicators are key statistics that indicate the direction of an economy. While the indicators can be numerous, there are three broad categories of economic indicators: leading indicators, coincident indicators and lagging indicators.

Leading indicators, such as consumer durables, net business formations and share prices, are used to predict the future movements of an economy. Coincident indicators, which include such things as GDP, employment levels and retail sales, are seen with the occurrence of specific economic activities. Finally, lagging indicators, such as gross national product (GNP), CPI, unemployment rates and interest rates, are only seen after a specific economic activity occurs. Most of these economic indicators have a specific schedule for release, allowing investors to prepare for and plan on seeing certain information at certain times of the month and year.

Problems With Economic Indicators

An economic indicator is only useful if one interprets it correctly. History has shown strong correlations between economic growth, as measured by GDP, and corporate profit growth. However, determining whether a specific company may grow its earnings based on one indicator of GDP is nearly impossible. Indicators provide signs along the road, but the best investors utilize many economic indicators, combining them to glean insight into looking patterns and verifications within multiple sets of data.

An Example of Economic Indicators

Economic indicators are often combined to produce a composite view of economic performance. For example, the state of Florida, on July 11, 2016, released an analysis on its economic indicators for the month of May 2016. The analysis consisted of its CPI, employment levels, unemployment insurance, unemployment rate, real estate and housing price index.

It was found that Florida's CPI for the month of May 2016 was slightly higher than the national average. Employment within the state grew by 24,000 jobs from April to May, a good sign. Unemployment claims, measured on a four-week moving average, remained well below the state's peak in 2009, which resulted in an unemployment rate of 4.7%, equal to the national average for May. Finally, new homes in Florida dropped by 9.1% and housing prices increased by 2%, which may cause slight concern.

  1. Economic Conditions

    Economic conditions are the state of the economy in a country ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy ...
  3. Coincident Indicator

    A metric which shows the current state of economic activity within ...
  4. Economics

    A social science that studies how individuals, governments, firms ...
  5. Economic Recovery

    An economic recovery is a period of increasing business activity ...
  6. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services ...
Related Articles
  1. Trading

    The Fundamentals Of Forex Fundamentals

    Charting is not the only way to analyze the foreign-exchange market. Learn how to apply fundamental analysis to the economic indicators.
  2. Insights

    Economic Indicators That Affect The U.S. Stock Market

    Macroeconomic factors like GDP, Inflation, and Retail Sales affect the value of your portfolio. Understanding these economic indicators is vital for every investor in the marketplace.
  3. Insights

    Deadly Flaws in Major Market Indicators

    These indicators give investors and experts some data to work with, but they're far from perfect.
  4. Insights

    Economic Indicators for Germany

    Here is a list of the top macro-economic indicator data sources for Germany.
  5. Insights

    The Top Ten Economic Indicators In The UK

    We list below ten key economic indicators for the United Kingdom, the world’s 6th-largest economy.
  6. Trading

    How to Build a Trading Indicator

    Wondering how Ralph Nelson Elliott and W.D. Gann built their trading tools? The basics of constructing an indicator.
  7. Insights

    Top Ten US Economic Indicators

    We explain the most important economic indicators for the US economy.
  8. Personal Finance

    2 Reasons Why the Stock Market Leads the Economy

    Pay attention to how economic strength can follow a sustained stock market advance and how economic weakness can result from a stock market slump.
  1. What economic indicators are important to consider when investing in the retail sector?

    Learn why the unemployment rate and Consumer Confidence Index are two of the best economic indicators when investing in the ... Read Answer >>
  2. What are key economic growth rates that can be used to determine the economic health ...

    Discover the indicators that correlate with real economic health, and learn why many traditional metrics do not function ... Read Answer >>
  3. What economic indicators are important for investing in the financial services sector?

    Read about some of the most important macroeconomic indicators that investors in the financial services sector should watch ... Read Answer >>
  4. What economic indicators should an investor in the real estate sector consider?

    Find out about economic indicators and which indicators investors in the real estate sector should take into account before ... Read Answer >>
  5. What economic indicators are most used when forecasting an exchange rate?

    Discover what economic indicators are most widely used to forecast a country’s exchange rate and how various factors influence ... Read Answer >>
  6. How should an investor interpret the consumer and business confidence index when ...

    Learn how investors benefit from watching the consumer and business confidence indexes, along with other key metrics, when ... Read Answer >>
Hot Definitions
  1. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  2. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  3. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  4. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  5. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  6. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
Trading Center