Economic indicators: what are the main ones and what are they used for?

Whether you’re looking to take your first step into the world of finance or simply gain a deeper understanding of your country’s economic situation, understanding economic indicators is a must. These tools, the cornerstones of economic analysis, are a fundamental compass for anyone wishing to navigate the often unpredictable sea of economics. There are numerous types of economic indicators, each with different publication times, areas of application, and audiences.

The variety of data may seem daunting at first, but it’s not necessary to learn to read all of it in depth. The key is to identify those most relevant to your goals, whether it’s investments, macroeconomic analysis, or simply a greater awareness of economic dynamics.

What are economic indicators?

Economic indicators are data and statistics that reflect the economic activity of a country or specific sectors. They provide a window into the state of the economy and offer valuable insights to economists, investors, and policymakers. This data allows us not only to analyze current conditions but also to make forecasts of future trends, from economic growth prospects to financial market fluctuations.

These indicators, regularly published by governments, financial institutions, and international organizations, are essential for interpreting complex phenomena and making informed decisions. For example, data on inflation, unemployment, or GDP are used to define economic policies and investment strategies. Among the many available indicators, some stand out for their ability to provide a clear view of the general state of the economy. Knowing them means having a powerful tool for interpreting the present and anticipating the future.

Why are economic indicators so important

Economic indicators influence all major economic players:

• central banks use them to decide on monetary policies, such as raising or lowering interest rates;
• governments use them to define public budgets, introduce incentives, or adopt restrictive measures;
• investors monitor them to anticipate market movements and position themselves advantageously;
• businesses use them to plan expansion, investment, or hiring strategies;
• citizens also suffer their direct effects, as they affect wages, the cost of living, mortgages, and employment.

Let’s imagine a concrete example: if the data show that inflation in Europe is rising more than expected, the European Central Bank could respond by raising interest rates. This makes loans more expensive for households and businesses, strengthens the euro on currency markets, and can put pressure on the stock market. In just a few hours, a single indicator can have tangible consequences across multiple sectors.

Types of Economic Indicators

Depending on the timing of their presentation, economic indicators can be divided into three macro categories:

• leading indicators, also known as leading indicators or advanced economic indicators. These provide an advance idea of how the economy will behave in the future, always keeping in mind that there may be a certain margin of error;
• coincident indicators, or coincident indicators, occur in conjunction with the conditions they study, whose changes occur simultaneously with those of the economy. These include the unemployment rate;
• lagging indicators, or late economic indicators; they refer to past events and appear following a change in the economy. They serve as confirmation, and GDP, for example, is one of them.

Each economic indicator has a very specific release frequency, known in advance by traders, which can be daily, weekly, quarterly, or even annually. The publication of reports, however, must always be punctual to allow for truthful analysis.

What are the main economic indicators

Among the various economic indicators present, there are four main ones published by the government. In this case, publication occurs through reports, either monthly or quarterly, always depending on the indicator in question. These reports can have repercussions in both the short and long term, not only with regards to the exchange rate of a single country, but also for all the others. For this reason, it is good to be aware of them.

Since the market focuses exclusively on a couple of numbers present in the various reports, this type of indicator can be called a "number trade", precisely because traders take into account only one value, and not the entire published report. The main economic indicators (or number trades) that cause the greatest market fluctuations are the following:

• the GDP (Gross Domestic Product);
• the unemployment rate;
• retail sales;
• the consumer price index;
• CCI (consumer confidence index);
• inflation;
• the interest rate;
• the spread.

GDP
The Gross Domestic Product (GDP) is the most widely used measure to evaluate a country’s total economic output. It represents the value of all goods and services produced in a given period and is a key indicator for understanding economic growth.

The GDP growth rate helps identify phases of economic expansion or contraction.

Two ratios related to GDP are particularly significant:

• Deficit/GDP ratio: indicates the percentage of public deficit compared to GDP. A high deficit can signal fiscal imbalances and the need to reduce public spending or increase revenue;
• Debt-to-GDP ratio: measures the sustainability of public debt compared to a country’s productive capacity. A high ratio may indicate the risk of insolvency or dependence on external financing.

GDP, along with its related ratios, is essential for defining sustainable economic policies and attracting investment, serving as a point of reference for analysts, governments, and international institutions.

Employment and Unemployment
The monthly report on employment or unemployment growth provides information on economic performance. In this case, the focus is on the net number of jobs created or lost. In the case of a high unemployment rate, in fact, a country’s economy is experiencing problems; otherwise, it would be considered to be growing. So, as an economic indicator, we can say that:

The unemployment rate measures the percentage of the workforce actively seeking employment but unable to find one. Complementary is the employment rate, which measures the percentage of the working-age population actually employed.

The unemployment rate is often broken down by sector, demographic group, and geographic area to identify any disparities. It is also closely monitored to analyze phenomena such as structural unemployment (due to technological or sectoral changes) and cyclical unemployment (linked to economic cycles). Managing these indicators is a priority for policymakers, as low unemployment supports consumption and economic growth. However, too low levels can also generate inflationary pressures, as companies compete for a limited number of workers, raising wages.

Retail sales
This data is also collected through a monthly report and is used to assess the strength or weakness of a country’s economy. Released monthly by Istat and is the main indicator of consumer spending.

The retail sales indicator measures the total value of sales of goods and services made by retailers to final consumers in a given period. This parameter is a direct indicator of consumer demand and is a fundamental component of the Gross Domestic Product (GDP).

An increase in retail sales is a positive sign for the economy, as it suggests consumer confidence, greater disposable income, and a potential increase in industrial production. Conversely, a decline in sales can indicate economic difficulties, loss of purchasing power, or financial uncertainty. Here’s where to find monthly updates on retail sales in Italy.

Inflation
This data is essential for many other economic indicators. Inflation measures the general increase in the prices of goods and services in an economy, directly influencing the purchasing power of money. It is a crucial indicator for assessing economic health and is often expressed as annual percentage change.

Conversely, deflation represents a prolonged decline in prices, which can be a symptom of economic weakness, while stagflation combines high inflation with economic stagnation and high unemployment. Deflation, less common, represents a significant risk because it can trigger a negative spiral of reduced consumption and investment, worsening the economic outlook.

stagflation, on the other hand, presents a complex challenge for policymakers, as it requires policies that balance inflation containment with growth stimulation. Analyzing inflation is essential for investors, businesses, and governments, as it impacts monetary policy, investment decisions, and financial planning. Indicators such as the CPI and PPI are crucial for measuring it and anticipating its consequences.

Consumer Price Index
The Consumer Price Index (CPI) and the Producer Price Index (PPI) are two key tools for measuring price changes and assessing inflation in an economy. The CPI represents the change in prices of a basket of goods and services purchased by final consumers. It includes food, energy, transportation, healthcare, and other essential goods, providing a direct indication of the cost of living.

The PPI, on the other hand, measures changes in the prices of goods and services at the production level, before they reach consumers. It is often considered a leading indicator, as an increase in the PPI tends to be subsequently reflected in the CPI. The PPI is important for analyzing the costs borne by businesses and for assessing the competitiveness of productive sectors. Both indices are fundamental for central banks, as they provide crucial indications for determining monetary policies, such as adjusting interest rates to keep inflation under control.

Spread
The spread is a fundamental indicator that measures the difference in yield between two bonds, generally used to compare the government bonds of one country with those of a reference country.

In the Eurozone, the spread between Italian BTPs and German Bunds is one of the most common examples. This indicator is crucial for assessing the perception of sovereign risk, as it expresses how much more a country has to pay compared to Germany, considered the benchmark of solidity.

A high spread indicates that the country is perceived as riskier by investors, which can be reflected in an increase in the cost of public debt and credit conditions for households and businesses. Governments monitor the spread closely, as an increase in it can signal a loss of confidence in economic policies or financial stability.

For example, an increase in the spread may result from a fiscal policy deemed unsustainable or from geopolitical tensions that undermine a country’s economic stability. In addition to its effects on the cost of public debt, the spread also indirectly affects the interest rates applied to mortgages and loans, penalizing families and businesses.

For this reason, it is a key indicator for investors and policymakers. Interest rates represent the cost of money, determined primarily by central bank policies. They influence lending, mortgages, investments, and, more generally, economic activity. A lower interest rate tends to stimulate the economy by making financing more accessible, while a higher rate helps contain inflation by making money more expensive. The real interest rate, on the other hand, is the nominal rate adjusted for inflation. It provides a more accurate measure of the actual return for investors and the real cost of credit for borrowers. For example, if a nominal rate is 5% and inflation is 3%, the real rate will be 2%. This data is essential for assessing the purchasing power of investments and the burden of debt.

CCI (Consumer Confidence Index)
Finally, the Consumer Confidence Index (CCI) measures the level of optimism or pessimism consumers have about a country’s economy. This indicator is based on surveys that assess people’s perceptions of current and future economic conditions, such as job security, disposable income, and intention to make major purchases.

A high value of the index indicates a positive expectation, which translates into a greater propensity to spend, stimulating economic growth. Conversely, a low value reflects increased uncertainty and a likely contraction in consumption.

The CCI is also useful for forecasting the future direction of the economy, since consumer spending represents a significant portion of GDP. Businesses and governments closely monitor this indicator, since an increase in confidence can incentivize investment and expansionary policies, while a decline requires targeted interventions, such as tax incentives or direct support for families. The indicators mentioned above provide a good economic reading, useful for understanding how to learn to play the stock market, but also for gaining a clearer idea of a country’s economic events.

How to use economic indicators in trading?

Economic indicators are fundamental tools for traders because they allow them to anticipate market movements that often occur suddenly upon their publication. It is not only the data itself that is relevant, but above all its ability to surprise the market. Traders, in fact, never wait for cold news: before each release, analysts’ forecasts and estimates are published, becoming the true point of reference. If the official result differs significantly from expectations, the impact can be very strong, generating spikes in volatility and sudden movements in currencies, stocks, or commodities.

For this reason, those who want to use economic indicators in trading must learn to compare three key elements: the published data, the market forecast, and previous values. Only by analyzing this triangle can useful conclusions be drawn to decide whether to enter the market, exit a position, or wait for greater clarity. Trading during the release of economic news, however, is not suitable for everyone. It requires composure, experience, and solid risk management. The volatility that occurs in those minutes can generate very rapid gains, but at the same time, it can lead to significant losses if the position is not managed correctly.

One of the most widely used techniques is that of pending orders. In practice, two orders are placed moments before the news is released: a buy stop above the current price and a sell stop below. When the market reacts to the news with a strong swing, one of the two orders is activated, following the market’s main momentum, while the other must be cancelled. This strategy allows you to "capture" the movement without having to predict the direction in advance. Of course, strategy alone isn’t enough: it’s also essential to consider the broker’s technical conditions.

During news releases, many brokers can widen spreads, introduce limits on pending orders, or even temporarily suspend their execution. All of these factors can jeopardize the success of a trade, even if the market direction is interpreted correctly. For this reason, it’s always advisable to trade with transparent and reliable brokers, preferably with No Dealing Desk, ECN, or STP execution, which minimize conflicts of interest and price slippage.

Original article published on Money.it Italy. Original title: Indicatori economici, quali sono i principali e a cosa servono