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CFO Fundamentals: Your Quick Guide to Internal Controls, Financial Reporting, IFRS, Web 2.0, Cloud Computing, and More by ALLISON I. SHIM, JOEL G. SIEGEL, JAE K. SHIM

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CHAPTER THIRTY-THREE

Reading Economic Indicators

The CFO should have an understanding of economics and the economy’s effect on the company. He or she should know how to read and interpret various economic indices and statistics that are vital to the success of the business in a dynamic, ever-changing economic environment. This knowledge will enable better financial and investment decisions.

HOW CAN YOU KEEP TRACK OF THE ECONOMY WITH ECONOMIC AND MONETARY INDICATORS?

To sort out the confusing mix of statistics that flow almost daily from the government and to help you keep track of what is going on in the economy, we examine various economic and monetary indicators.

Economic and monetary indicators reflect where the economy seems to be headed and where it has been. Each month government agencies, including the Federal Reserve Board, and several economic institutions publish various indicators. These can be broken down into five broad categories:

  • Measures of Overall Economic Performance
  • Price Indices
  • Indices of Labor Market Conditions
  • Money and Credit Market Indicators
  • Measures for Major Product Markets

Measures of Overall Economic Performance

These measures include gross national and domestic products, industrial production, personal income, housing starts, unemployment rate, and retail sales.

Gross Domestic Product

Gross domestic product (GDP) measures the value of all goods and services produced by the economy within its boundaries, and is the nation’s broadest gauge of economic ...

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