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Investments - Economic Indicators

Fact Scenario

CNR Investments, Inc., a full service brokerage firm, has a number of stockbrokers and analysts on its staff. Moreover, it employs a number of economists. The work of the economists is in monitoring economic indicators and predicting future trends in the price of certain securities based on economic indicators. Why would the role of an economist be so important to an investment firm?

Introduction

Economic indicators play an important role in the decisions made by investors.

Major Economic Indicators

There are many economic indicators in existence. A few economic indicators of particular interest to investors are as follows:

Consumer Confidence Index (CCI) - The consumer confidence shows the level of confidence consumers feel about the economy, as well as their level of spending power.

Consumer Price Index (CPI) - The CPI measures inflation. In fact, it is the most widely recognized measure of inflation.

Employment Cost Index (ECI) - The ECI measures the cost of labor. The information reflected in the ECI includes wages, benefits, and bonuses.

Employment Indicators - Usually, employment indicators reflect the number of new unemployment claims filed by individuals.

Gross Domestic Product (GDP) - Many investors consider the GDP the most important economic indicator. It reflects the total monetary value of all of the goods and services produced by the entire economy for a single quarter.

Retail Sales Index (RSI) - The retail sales index tracks good sold within the retail sales industry. It includes large chains, as well as small stores. The information reflected in the index is derived from a sample set of particular stores located in various areas of the United States.

Another Indicator of Importance

Lastly, while it is not considered an economic indicator, the interest rate also plays an important role in the decisions made by many investors.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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