Las finanzas me han llamado mucho la atención desde que entré a la universidad. Por lo que decidí involucrarme en el área de Investigación de la Facultad para apoyar en artículos relacionados en finanzas. Me recomendaron que tomara el curso de Bloomberg Market Concepts y he quedado fascinado con lo que he visto. Todo está simplificado y explícito y para mí que soy alguien que goza de aprender a través de la computadora, el curso está magnífico. El curso es en inglés y los apuntes y lo que he aprendido es en inglés así que me permitiré escribir sobre Indicadores Económicos Esenciales en inglés a continuación e incluiré los key terms en Español.
GDP (Producto Interno Bruto in Spanish) is the Market Value of all final goods and services produced in a country. It is the best way to measure economic activity of a country.
Investors can find information about the economic growth of a country through the quarterly and annual GDP releases done by central banks along with the expectations of growth. If the GDP forecast is lower than what the actual economic release shows, investors may react positively and maintain and raise their investments. Contrarily, if the GDP forecast is higher and the actual GDP growth is less than expected, investors may evaluate investing in countries where growth is certain.
It is defined as the general increase in the prices of goods and services which diminishes the purchasing power of money. Inflation is measured by the Consumer Price Indexes and mostly for policy-making the GDP Price deflator. The Consumer Price Index may focus on the commodity bundle (canasta básica) or housing. And the GDP Price deflator uses a macroeconomic approach. As time changes the commodity bundle changes. Netflix is now part of the service bundles of many developed countries.
In most economies where personal consumption takes a major role, a sudden rise of inflation would mean that people have less money to spend because they have the same amount of money and things cost more. Likewise a sudden deflation sometimes is sign of fall in consumption or wages, and that is also not appreciated by investors. But for firms that have inelastic demand (consumers are not very reactive to price changes in certain goods and services) the increase in price may benefit them.
Finally, there is another reason that investors pay close attention to this index. The CPI is released monthly rather than quarterly and it may serve as a prediction of the GDP. In example, imagine you are an investor and you have analyzed the CPI of January and February, and you see that inflation has risen more than expected in both months, if you have thousands of stocks in a company of services that are not inelastic, would you wait until the end of the quarter to figure out if the GDP will grow? Maybe not, remember that value of money in time is a major key to investors, and the sooner the information arrives, the better.
Unemployment is not only an economic issue but also a social issue. The first direct problem that arise is the lack of income in consumers. And in a consumer economy, there is a tight connection between unemployment and GDP. Okun’s law portraits this very precisely, a 1% increase in unemployment causes a 2% fall in GDP.
Government benefits from rise in payments when consumers and industries pay taxes, but it benefits more of people not taking the streets for one cause or another, or they are getting sick and addicted to drugs and nobody can help but the government with the bills and medicines, or when people decide to steal or commit crimes in order to survive. Similar to the trade agreements after World War 2, if there is a unified business relationship with people, everybody benefits from the flow of the economy. Also, the government releases this report monthly rather than quarterly and that makes it a must-see for investors, since the combination of this and other indicators may be useful for them to make timely decisions with their investments.
Individual business leaders make much bigger decisions than individual consumers. Businesspeople tend to make large investments and hire people when they feel confident that there will be additional demand for their goods and services in the future. Taking for example Whirlpool Corporation, the company I currently work in, there is Business confidence from our CEO Marc Bitzer, and that’s why operations and profits have grown this year.
Whirlpool has a planned production according to the strategy that the Marketing team states. That strategy is mostly build on the expectation of customers in peak seasons, historical data and new campaigns. The plan of production triggers the Global Strategic Sourcing department (where I currently work as Project Manager for Model Lines of Refrigeration in USA Plants) and we start updating agreements with our suppliers and verifying that they meet the quality and requirements we want to ensure for our products. And those suppliers may have other suppliers, and so on every step adds value to the economy.
It may be measured by the Institute of Supply Management through PMI (Purchasing Managers Index). The PMI asks to leaders of corporations the demand and supply increase according to a KPI. Depending on the score they get they choose an optimistic approach or a pessimistic approach for each test and finally add up the information of all the corporations that participate in the survey. The index is delivered monthly and is as useful as the other indicators that are released monthly.
Even though the act and service contributes to the economy of the USA only 3%, the company that is building the houses must make sure that there is a market of people willing to commit to 30 year mortgages. And also after people buy a house they also consume other products and services such as televisions, kitchens, landscaping services and everything that is needed in a house. So it is essential that housing grows as it is a major signal of bonanza in the future. There is a very clear correlation between real GDP growth and Housing growth. Housing starts reports are also released monthly, and if your business implies any product or service mentioned before, it is a very useful indicator in order to target possible future customers and can help you plan accordingly.
Thanks for your time, hope you had learned something out of this blog.