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.

RELATED TERMS
  1. Economic Conditions

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

    Indicators are statistics used to measure current conditions ...
  3. Lagging Indicator

    A lagging indicator is an economic factor that trails macro changes ...
  4. Coincident Indicator

    Coincident indicator refers to metrics that reflect the present ...
  5. Composite Index Of Lagging Indicators

    The Composite Index of Lagging Indicators is an index published ...
  6. Economic Growth Rate

    An economic growth rate is a measure of economic growth, typically ...
Related Articles
  1. Investing

    Economic Indicators You Should Know for Investment

    Economic indicators are some of the most valuable tools investors can place in their arsenals. Understand these investing tools for better market returns.
  2. 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.
  3. 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.
  4. Insights

    Deadly Flaws in Major Market Indicators

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

    Where To Find Economic Indicator Data For Brazil

    Once an emerging economic powerhouse, the Brazilian economy is now struggling. Here is the list of primary economic indicators and sources to get Brazil's economic indicators.
  6. Insights

    Introduction To Coincident And Lagging Economic Indicators

    Investors can learn a lot, or very little, from these indicators once they know how to use them.
  7. Insights

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  8. Insights

    The Top Ten Economic Indicators In The UK

    We discuss ten key economic indicators for the United Kingdom, the world’s 6th-largest economy.
RELATED FAQS
  1. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
  2. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
  3. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  4. What common strategy do traders implement when using the money flow indicator?

    Learn a common trading strategy traders implement with the money flow indicator to identify profitable trade entry and exit ... Read Answer >>
  5. What economic indicators do oil and gas investors need to watch?

    Leading indicators for oil and gas investments are centered on the levels of production, consumer demand and inventory levels ... Read Answer >>
Trading Center