# Financial Indicators: Types, Uses & Examples Explained

## What Is an Indicator?

Financial indicators are crucial tools used to gauge current economic and financial conditions and predict trends. In investing, they often involve [technical](https://www.investopedia.com/terms/t/technicalindicator.asp) chart patterns based on a security's price or volume, such as moving averages and the MACD. Economically, indicators like the CPI and GDP help assess the health and direction of the economy.

*   Indicators are essential statistics used to assess current conditions and predict financial or economic trends.
*   Economic indicators, like the Consumer Price Index and gross domestic product, gauge the health of the economy and forecast its direction.
*   Technical indicators, such as moving averages and relative strength index, are used in analyzing securities to predict future price movements.
*   Key performance indicators help measure a company's success against specific objectives, with common examples including gross margin and net profit.
*   Relying solely on indicators can be risky, as economic data must be analyzed and interpreted correctly.  
    

## Exploring Economic and Technical Indicators

Indicators can be broadly categorized into economic indicators and technical indicators.

[Economic indicators](https://www.investopedia.com/terms/e/economic_indicator.asp) are statistical metrics used to measure the growth or contraction of the economy as a whole or sectors within the economy. In [fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp), economic indicators help assess the future profitability of public companies by quantifying current conditions.

Technical indicators are often used to predict changes in stock trends or price patterns of traded assets.

## Key Economic Indicators Explained

There are many economic indicators created by different sources in both the private and public sectors.

For example, the [Bureau of Labor Statistics](https://www.investopedia.com/terms/b/bls.asp), which is the research arm of the U.S. Department of Labor, compiles data on prices, employment and unemployment, compensation and work conditions, and productivity. The price report contains information about [inflation](https://www.investopedia.com/terms/i/inflation.asp), import and export prices, and consumer spending.

The [Institute for Supply Management (ISM)](https://www.investopedia.com/terms/i/institute-for-supply-management.asp) is a not-for-profit professional association for supply management and purchasing professionals.

It has published its [_ISM Manufacturing Report on Business_](http://www.ism.ws/content.cfm?ItemNumber=10743) monthly since 1931. The report contains a composite index, the [Purchasing Managers' Index (PMI)](https://www.investopedia.com/terms/p/pmi.asp), which contains information on manufacturing and non-manufacturing orders. The index is a closely watched barometer of economic activity.

The U.S. [Department of Commerce](https://www.investopedia.com/terms/d/department-of-commerce.asp) uses ISM data in its evaluation of the economy.

Housing and real estate have been key economic indicators for most of the 21st century. There are several metrics used to measure housing growth including the [S&P/Case-Shiller Index](https://www.investopedia.com/terms/s/sp_case_shiller_us_nhpi.asp), which measures house sale prices, and the [NAHB/Wells Fargo Housing Market Index](https://www.investopedia.com/terms/h/housingmarketindex.asp), which is a survey of home builders that measures the market appetite for new homes.

Interest rates, [money supply](https://www.investopedia.com/terms/m/moneysupply.asp), and [consumer sentiment](https://www.investopedia.com/terms/c/consumer-sentiment.asp) are also economic indicators.

> **Warning**
>
> Beware of leaning too heavily on economic indicators to make investment decisions. Economic data is usually far from perfect and still needs to be analyzed and interpreted correctly.

## Unveiling Technical Indicators in Market Analysis

In technical analysis, an indicator is a mathematical calculation based on a security's price or [volume](https://www.investopedia.com/terms/v/volume.asp). The result is used to predict future prices.

Common technical analysis indicators are the [moving average convergence-divergence (MACD)](https://www.investopedia.com/terms/m/macd.asp) indicator and the [relative strength index (RSI)](https://www.investopedia.com/terms/r/rsi.asp).

The MACD is based on the assumption that the tendency of the price of a traded asset is to revert to a [trend line](https://www.investopedia.com/terms/t/trendline.asp).

The RSI measures recent gains against losses to find an asset's price [momentum](https://www.investopedia.com/terms/m/momentum.asp) up or down. Using tools like the MACD and the RSI, technical traders will analyze assets' price charts looking for patterns that will indicate when to buy or sell the asset under consideration.

## Examples of Economic and Technical Indicators

### Consumer Price Index (CPI)

One of the most common economic indicators is the Consumer Price Index (CPI), which is simply the weighted price average of a basket of consumer goods and services. Changes in CPI are used to measure changes in the cost of living and to identify periods of inflation or deflation.

At the time of writing (Summer 2021), investors are becoming increasingly concerned that rising inflation will finally upend the bull run in the stock market. In April 2021, the CPI increased 0.8%, making it the biggest 12-month increase since September 2008.

### Moving Average (MA)

Moving average (MA) is a technical indicator used to identify the general direction, or trend, of a given stock. Its purpose is to smoothen historical price data by generating a constantly updated average price.

If the MA is moving in a positive (negative) direction, that's a bullish (bearish) sign for the stock.

At the time of writing, Amazon stock recently [broke through its 50-day moving average](https://finance.yahoo.com/news/amazon-amzn-just-overtook-50-125012839.html), suggesting that it's an attractive pick from a technical standpoint.

## Indicator FAQs

### What Is a Common Indicator of a Phishing Attempt?

Emails that are completely unsolicited, contain several typos, require urgent action, and demand unusual actions from you are all indicators of a phishing attempt.

### What Economic Indicator Describes Generally Declining Prices?

A steadily declining CPI is an indicator of generally declining prices.

### What Is a Key Performance Indicator?

A key performance indicator refers to a quantifiable measurement used to measure a company's success against a specific target or objective. Common KPIs include net profit, sales, and customer retention rate.

### What Is an RSI Indicator?

The relative strength index (RSI) is a technical analysis indicator that compares the size of recent gains to recent losses. RSI is used to determine the asset's price [momentum](https://www.investopedia.com/terms/m/momentum.asp), either up or down.

### What Is the Genuine Progress Indicator?

[Genuine progress indicator (GPI)](https://www.investopedia.com/terms/g/gpi.asp) is a metric used to gauge a country's rate of economic growth. It is often considered a more reliable measure of economic progress than the more widely used gross domestic product (GDP) figure.

### What Are Indicators of a Company's Profitability?

Commonly used indicators of a company's profitability include gross margin, operating margin, net margin, and return on equity (ROE).

## The Bottom Line

Indicators are crucial tools for investors, who use them to gauge current financial and economic conditions and forecast trends. These statistics are divided into economic indicators, which measure the overall health and movement of the economy, and technical indicators, used in analyzing securities.

Common economic indicators, such as the Consumer Price Index (CPI) and gross domestic product (GDP), offer insight into economic performance, while technical indicators like the moving average (MA) and relative strength index (RSI) help in predicting stock market movements.

While these tools provide valuable insights, investors should be cautious and not rely solely on indicators for decision-making, as economic data can be imperfect. Understanding and properly analyzing these indicators enhances the ability to make informed and confident investment decisions.  

> **Article Sources**
>
> 1.  U.S. Bureau of Labor Statistics. "[Consumer Price Index Summary](https://www.bls.gov/news.release/cpi.nr0.htm)." Accessed June 14, 2021.