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.
Explaining ‘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.
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.
Further Reading
- The variable financial indicator IRR and the constant economic indicator NPV – www.tandfonline.com [PDF]
- Financial deepening and economic development of Nigeria: An empirical investigation – papers.ssrn.com [PDF]
- Finance and growth: Schumpeter might be right – academic.oup.com [PDF]
- Financial sector development and economic growth: The South-Asian experience – www.sciencedirect.com [PDF]
- The internal rate of return (IRR) as a financial indicator – www.tandfonline.com [PDF]
- Does financial development 'lead'economic growth? A vector auto-regression appraisal – www.tandfonline.com [PDF]
- Financial intermediaries and monetary economics – www.sciencedirect.com [PDF]
- Momentum and contrarian profits corresponding to the coincident economic indicator on the Taiwan stock market – www.tandfonline.com [PDF]
- Does financial development cause economic growth? Time-series evidence from 16 countries – www.sciencedirect.com [PDF]
