Economic indicators are statistical data that investors and economists use to help make predictions about the ups and downs of the economy. Indicators are also used to analyze economic performance.
The Gross National Product (GNP), the employment/ unemployment rate, the trade deficit, the Producer Price Index and the inflation rate are economic indicators. Tracking fluctuations in these indicators, and others, presents a picture of what the economy has been doing, is doing, and may do in the future.
Generally, indicators are classified as leading, coincident or lagging.
A leading economic indicator precedes shifts in the economy. The stock market and bond yields are in this group.
A coincident indicator occurs at the same time the economy is shifting. Payroll and personal income are two examples.
A lagging economic indicator follows the economy. The unemployment rate comes under this heading.
Investors study economic indicators to understand what is happening in financial markets. If you think of the economy as a seesaw, rising and falling with a few bumps in between, knowing which way the indicators point can help smooth out the ride.