Understanding Key Economic Indicators_英语论文

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● 林兆权 By Desmond Lum     In these times when market forces appear increasingly complicated and more volatile, it is all the more important to understand the professional jargon and terminology in themarket place in order to be able to better make our investmentand business decisions. Understanding key-economic indicatorswill assist in the decision making process, providing a snapshotof the current situation and an insight into the future.     Each economic indicator tells us something about the economy or inflation. Gross Domestic Product (GDP) is probably the most important report as it is the whole framework where other economic indicators fall under. Using the textbook formulawhere Gross National Product = Consumption + Investment + Government Spending + Exports - Imports, some of the indicators will fall into the above-mentioned category e.g. retail sales figures will fall under Consumption, construction spending under investment, to name a few.    There are also indicators that are broader that tell us about the economy itself rather than the component, e.g. employment figures, leading indicators, money supply figures(M3). Inflation figures, Produce Price Index (PPI) and the Consumer Price Index (CPI) will, in short , inform us of the changes in wholesale prices , cost of consumer (retail) goods and services respectively.     An indicator that is useful must be accurate, timely and reliable. It depends entirely on the integrity of the national statistical system responsible. It is vital to know the accurate components of an indicator. We have to be mindful of the limitation of these statistical figures too.    Some indicators can be historic or extremely volatile, andtherefore their value are reduced. It is better to compare the most recent data with earlier months, or take a moving average for the past 3,6 or 12 months to smooth the data. It will tell us if there has been a significant change in trend and whether a new direction is under way.    Timeliness of an indicator is also significant. Although the reported figures are important, it is crucial to recognise that markets react to the variance to the consensus forecast than to the absolute change in the indicator. Markets do not like surprises and can be frustrated with volatility upon subsequent revisions to the numbers published, even though significance of the absolute number diminishes with each passing month.    In the US, together with the monthly employment report released on the first Friday of the month, an important survey by US National Association of Purchasing Management (NAPM) is released within the first three business day of the month, which tracks the economic movements fairly well. These two reports are considered by many as valuable adjunctto the Commerce Department’s index of leading indicators.    The Index of Leading Economic Indicators (LEI) in the US acts as an early warning system, telling us when the economyis about to change direction. This composite index of 11 leading indicators has a good record of providing accurate forecasts. The total index performs better as a prediction tool than any of its parts. This monthly figure is availableon the last business day of the month and has low volatility.     As a general rule, turning points in the economy are signalled by three consecutive months of LEI changes in the same direction. This leading indicator is like a lighthouse,giving the rest of the world economies a glimpse of the direction of the world’s largest economy.   Singapore is highly dependent on trade, about four times our GDP in 1997 at US $217.7 billion. The US is the most important destination for our electronics exports, followedby Malaysia. Electronic goods make up about 70% of non-oil domestic exports and about 45% of manufacturing sector. It is therefore imperative to note the demand of electronic goods from the US. As Singapore imports much of the raw materials needed for its value-added processes in the manufacturing concerns, the retained import figures become agood gauge of future activities.    Retain Import, a leading indicator (usually about three months) for the manufacturing sector, is still down. It fell15.6% for 1998. This spells weak manufacturing and electronics figures in the following two quarters. July’s total trade figures fell 9.1%, Singapore-made exports (also known as non-oil domestic exports) fell 2.3% worse than expected, led by the 5% decline in exports of electronic goods. Although the accuracy of the predicting quality is debatable, the retained import figure does give a relatively good indication of the directio
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