TYPICAL INDICATORS TO FORECAST ECONOMY
a. Prime Interest Rate/Interbank Offerred Rate
b. Mortgage Interest Rate
c. Treasury Yields
e. Crude Oil and Gold Price
f. Unemployment Rate (some look deeper into crime rate)
g. Inflation Rate
Quoting Howard G. Schaefer - In his book 'Economic Trend Analysis for Executives and Investors', Chapter 1 - Introduction
With so many factors to be considered, interpreting economic data is a daunting task. Indeed, attempting to interpret economic data presented in the form of millions, billions, and trillions of dollars is enough to discourage most people. Nevertheless, forecasting economic conditions is an essential element of sound business and investment decisions. To make these decisions executives and investors need a simple and timely method of understanding and evaluating economic data.
Graphs and charts have become very popular for simplifying information. Trend analysis is one of the principal means used to convey economic data to business, investors, and government. That is, statistical data are plotted on a chart so the reader can observe trends. As an example, the index of industrial production for the month of February 1992 was reported as 107.2, representing a 0.4% increase over the preceding January and a 1.4% increase from the preceding year
A published chart showing the trend indicated that the nation's industrial production was improving. But it did not address whether the trend would continue. Executives and investors need to make decisions based on future expectations, not just past performances. Without a consideration of the many factors that affect economic performance, a trend line has limited uses.
A newer technique called relationship analysis provides a much better understanding of economic data and future economic trends than trend analysis. Relationship analysis compares one set of economic data to another to determine whether there is a consistent relationship between the two sets of data that explains current economic conditions and indicates future economic trends. One principal advantage of relationship analysis is that the information is conveyed without the long delay for accumulating the economic data necessary to spot the trend.
Adapted from the original Posting in The Star Global Malaysians Forum
- Posted: 31 July 2006 at 5:32pm
ECONOMIC FORECASTING - WHAT'S IN IT FOR ME?
(Nik Zafri's version of Forecasting Economy for Dummies)
Most people are scared listening or even coming across economical terminologies. Indeed they (the terminologies) are not ‘laymen user-friendly’. Thus, most of us tend to 'shy away' especially those in small businesses not knowing the consequences of ignoring the current facts/reality of economy. To worsen situation, even the typical accounting tasks such as cash-flow monitoring has been ignored.
Don’t worry, it’s nothing too technical - in fact even economists in many occassions fail to do accurate economical forecasts and most of them end up arguing to defend their hypotheses.
Here’s some simple indicators (what YOU should know – the technical explanations are for the economists to worry about) :
a) GDP – most popular one – to you – don’t wait for the annual results but monitor the implementation of target, if you see in 5-6 months – it’s stil negative, then buckle up.
b) Consumer Price Index – to you – it tells you products/services – price/fee (fluctuations as well) etc. You could almost prophecise that you might be in trouble when you found out that you’re paying MORE than before.
c) Interest rate (it’s rising)– to you - it tells the level of ‘troubleness’ you’re encountering especially if you have a loan to settle.
d) Retail sales – to you – it tells you about your purchasing power, your spending habit, your saving habit, your confidence – you will know or feel these things when you see the word bonus, tax (cut/raise) etc.
e) Employment – to you – well, I guess you’re smart enough to figure this one out. Only two quick tips (out of many) – VSS and unemployed graduates.
The hidden ones are political stability (which you’re also smart enough to know) or 'that look' the traders are giving you when you ask for discounts!