U.S. GDP is expected to increase during the next 5 years. Unemployment seems to be taking a downturn as well. However inflation is expected to be higher than normal during this period as well with unemployment. As a financial analyst, how would you evaluate this forecast for your firm?
Its an issue of use of economic indicator to evaluate the future scenario for the economy, industry and firm.
Economic Indicators are used to gauge the impact of the indicators on the economy. An indicator is anything that can be used to predict future financial or economic trends. Popular indicators include unemployment rates, housing starts, inflationary indexes, S&P 500 and consumer confidence.
Unemployment as an indicator
There are lagging indicators also . A lagging indicator is one that follows an event.Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy is doing poorly or that companies are anticipating a downturn in the economy. Therefore the unemployment rate is a measure of past performance. It doesn't indicate much about the future performance. Similarly the lay off and hiring decisions comes with the lag and is based on the past ...
This discusses the concepts related to Unemployment