To be able to plan effectively for the future of your company it is important to be able to make good decisions NOW based on relatively substantial information. The decisions you make are directly related to how the environment around you is going to change and react to fluctuations in the current and future economy. Impossible to determine what the economy will do next? No! Difficult? Most definitely!
It is extremely complex and almost impossible to predict what the economy is going to do in the short-term. We will see the results and experience the effects of short-term fluctuations without being able to have predicted it, but still being able to manage it. What is important is predicting the longer-term trend of the economy, whether or not the economy is in a expansion. prosperity, contraction or recession. After a recessionary phase the expansionary phase can start again.
To determine what will happen to economic cycles we need to look at several leading indicators, which are predictive tools which are believed to change in advance of changes in the economy, giving you a preview of what is going to happen before the change actually occurs. The most trustworthy leading indicators are GDP (Gross Domestic Product), CPI (Consumer Price Index), PPI (Producer Price Index), JSE All Share Index, interest rate spread, employment indicators(such as job advertisement space in the Sunday Times, percentage change with year ago), NAPM (the National Association of Purchasing Management index), Consumer Confidence Index, durable goods orders (such as new passenger cars sold, percentage change with a year ago), ECI (Employment Cost Index) and productivity reports. To read more in depth about each leading indicator, follow www.investorguide.com
Thus impossible? No! Important and worth the effort? Yes!
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