Question

What is happening with the macroeconomic indicator today?

What is your 12-month prediction for the macroeconomic indicator? Will it go up or down? Why? Explain the logic of your prediction?

Do you trust the macroeconomic indicator? Is the data reliable or do you have a suspicion or hard evidence to show that the data is being manipulated?

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

In order for an economic indicator to have predictive value for investors, it must be current, it must be forward-looking, and it must discount current values according to future expectations. Meaningful statistics about the direction of the economy start with the major market indexes and the information they provide about:

• Stock and stock futures markets
• Bond and mortgage interest rates, and the yield curve
• Foreign exchange rates
• Commodity prices, especially gold, grains, oil, and metals

Although these measures are crucial to investors, they are not generally regarded as economic indicators per se. This is because they do not look very far into the future—a few weeks or months at most. Charting the history of indexes over time puts them in context and gives them meaning. For instance, it is not terribly useful to know that it costs $2 to purchase one British pound, but it may be useful to know that the pound is trading at a five-year high against the dollar.