Introduction
Economic indicators and reports are considered full statistics that are put out by non-profit organizations, private companies, and government agencies. They provide measurements used in evaluating the health of a countries economy. In addition, they reveal how the level of spending by the consumers and how they are faring. The changes that are shown by the economic indicators are reported on a periodic basis. Economic indicators can be released daily, monthly, or quarterly. Such economic indicators include the real gross domestic product, producer price index, consumer price index, consumer confidence, unemployment statistics, stock index and interest rates. When the profit of a particular industry moves up or down, it can be as a result of developments or corporate announcement within the industry.
Real Gross Domestic Product
The Real Gross domestic product is defined as the value of services and goods produced adjusted for price changes (Rose & Krausmann, 2013). The true growth of the economy, as well as the increase in the purchasing power, may not be reflected by the rise in the Gross domestic product. The Bureau of Economic Analysis periodically reports both the real and Standard Gross Domestic Product. An increase in the real Gross Domestic Product suggests that industries are producing goods and services of a higher value hence the general understanding is that they are making more profits.
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Rates of Unemployment
The rate of unemployment is determined by way of monthly surveys carried out on sixty thousand households. The unemployment rate is considered a key economic indicator that has a significant impact on the rate of hiring by the businesses (Baumohl, 2012). When more industries are involved in hiring, it can suggest to the market participants that the industrial firms are performing well. Conversely, when there is an unexpected rise in the rate of unemployment or when it declines at a rate that is below the expectations, it can be linked to the drop in the stock prices of the industries and that the cash-strapped industrial employers are tightening their belts. When the unemployment rate is reduced, the consumer spending tends to increase since many people have income for spending on the goods and services which is suitable for the industries. However, when the unemployment rate is low, the consumer spending is reduced since people do not have excess money for spending and this can negatively affect the profitability of industrial firms.
The Price Index
The price Indexes including the Producer price index and the consumer price index are also essential economic indicators that affect the profitability of the industrial firms. The consumer price index is a monthly measure of the prices of particular goods and services that are bought by the urban consumers (Rose & Krausmann, 2013). These goods and services include medical care, clothing, food and transportation and others. The consumer price index is published on a monthly basis, and it assists economists in gauging the level of inflation. Producer Price Index, on the other hand, is a measure is the measure of the changes in prices from the seller's perspective.
Consumer Confidence
Consumer confidence indicates the overall consumer optimism regarding the state of the economy. Consumers who are confident are willing to spend more money in buying goods and services as compared to those with low confidence. The periods of high confidence among the consumers can provide opportunities for new industrial firms to enter the market. The industries may be forced to cut its operation during periods of low consumer confidence as a way of maintaining the profits.
As a method of increasing the revenues of an industrial firm, they list their shares on the stock market. Selling the shares on the stock market is regarded as a cheaper means of borrowing money as compared to getting a loan (Baumohl, 2012). The stock market is characterized by the periodic falls and rise in the share prices, and this may not directly affect the overall performance of an industry. A firm may experience a sharp drop in the share prices in relation to other firms. This can take place in cases where investors have no optimism in the ability of the firm to pay good dividends and make profits. In instances the drop in the price share is sustained, the industries may be unable to raise enough revenue to facilitate their operations. This can, therefore, have a negative impact on the profitability of industrial firms.
Interest Rates
The interest rates can be related to the money that floats through the economic system, for instance, cash that the firm pays its employees and the cash that moves throughout the investment sector as well as the business. Industrial firms may often be required to take out longer-term debts for purposes of improvements and infrastructure. If there are higher current interests, taking on debts, become more costly hence the business is less likely to commit the funds to such projects (Rose & Krausmann, 2013). Making more profits is the goal of any firm at the primary level. Because saving capital by the firm at the current interest rates is considered as a possible source of revenue, new ventures are made less attractive by higher interest rates. For example, if a new program within an industrial firm can indicate that it is likely to obtain more profits in case more money is put into the program. However, if the prevailing interest rates are 6%, the firm may consider putting their money in the bank. Therefore, what the industrial firm considers a return on investment is dictated by the rates of interest.
Inflation
Inflation refers to the rate of increase in prices in the economy. Business expenses including cost of materials that are used in production, utilities, and rent tend to increase with inflation (Baumohl, 2012). Therefore, industrial firms may be forced to raise the prices of their products when the costs rise in order to maintain profits. Inflation can also negatively affect the consumers’ purchasing power.
Conclusion
Economic indicators include the real gross domestic product, consumer price index, producer price index, consumer confidence survey, current employment statistics, stock index and interest rates. They provide useful measurements that can be used in evaluating the health of a countries economy. In addition, they reveal how the level of spending by the consumers and how they are faring. The profitability of firms can directly be affected by the economic indicators hence the decisions made on regarding its operations.
References
Rose, A. and Krausmann, E., 2013. An economic framework for the development of a resilience index for business recovery. International Journal of Disaster Risk Reduction , 5 , pp.73-83.
Baumohl, B., 2012. The secrets of economic indicators: hidden clues to future economic trends and investment opportunities . New Jersey: FT Press.
