What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


Indicator

An indicator is a predictor of the economic future.

Expanded Definition

The state of the economy, whether the economy is expanding and growing, or in decline, and where we are in the business cycle are important considerations for those contemplating new business investments. Economists and especially the US Commerce Department constantly monitor the economy as measured by GNP or GDP and publish the information, but the official data tend to lag the event often by months.

Indicators are used to try to predict when the economy changes directions. There are both leading indicators and lagging indicators. The leading ones are those that react first. Once coal production was an indicator. Commonly electricity production and boxboard/packaging production are indicators. The stock market is often an indicator. Unemployment is an indicator. The inverted yield curve is an indicator. Interest rates are an indicator. Housing starts and new car sales are indicators.

Experts come to rely on certain indicators as most reliable as predictors in their business or sector. But all of these have their weaknesses and sometimes give false indications due to short term fluctuations. They are all subject to adjustment, correction, and debate.

Related Fool Articles

Related Terms

Recent Mentions on Fool.com

Advertisement