Question

Why should company managers or investors pay attention to macroeconomic indicators? Is it a good idea for company managers to do a formal review of key macroeconomic indicators every quarter (every 3 months) or is it a waste of time?

Answer 1

SOLUTION:-

* Macroeconomics indicators given an indication about an economy's state of health in general. Sound macroeconomic indicators are a sign of stability in the economy. The reason why managers should pay attention to macroeconomics indicators can be explained as follows-

1. GDP growth - A high growth rate gives a demand side perspective to the business. Sluggish growth could affect overall sales in the economy if per capita income takes a hit, Investors too take that into account since it would affect the returns on capital.

2. Currency strength - A weak currency is a good thing for a business that exports a lot and hence it would be interested in tracking the changes in currency rates since it would affect profitability. For investors, its a good thing if currency is strong since it would mean greater returns in future.

3. Inflation - A high inflation implies a lower purchasing power for consumers and workers. Not only it poses problem for managers as they would have to find way to cut costs but it also means that they need to renogiate worker contracts. Investors would also not be happy with high inflation as it implies lower real returns.

* From above 3 key macroeconomics indicators it appears its certainly not a waste of time to keep track of these macroeconomic indicators.