Bus305 Case Assignment 4

Bus305 Case Assignment 4 - Jason Roman TUI University...

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Jason Roman TUI University Bus305 Case Assignment 4 Dr. Benjamin Yeo September 30, 2010 Interest rates on residential mortgages and U.S. Treasury securities can be influenced by monthly changes and the longer-term trend changes of economic indicators. There are many variables that can influence the rates on long-term debt instruments, but an understanding of key economic indicators can provide clues to the future direction of interest rates. In most cases, economic reports are released on a monthly basis. Gross Domestic Product The gross domestic product (GDP) - the output of goods and services produced by labor and property located in the United States - is the most important economic indicator published. A larger-than-expected quarterly increase or increasing trend is considered inflationary, causing concern the Fed might need to intervene and raise interest rates in order to slow growth. Conversely, a negative growth, or economic downturn may cause the Fed to lower interest rates to stimulate the economy and increase the growth rate. Consumer Price Index The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a fixed market basket of consumer goods and services. The CPI is considered the most important measure of inflation. The CPI for All Items less Food and Energy (also sometimes referred to as the "core" or "underlying" CPI) excludes volatile food and energy prices. Analysts focus on the "core" CPI, which is considered a more accurate measure of the underlying rate of inflation. A higher-than-expected CPI or increasing trend is considered inflationary, and can cause bond prices to fall and yields and interest rates to rise. Likewise, a lower-than-expected CPI causes yields and interest rates to fall.
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Producer Price Index The Producer Price Index (PPI) is a family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPI's measure prices change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. The PPI can be volatile. It is best to use the six-month to one-year moving average. A higher-than-expected PPI is considered inflationary, and can cause bond prices to fall and yields and interest rates to rise. Likewise, a lower-than-expected figure causes yields and interest rates to fall. Employment Situation: Payroll Employment The government's employment report provides employment, hours and earnings estimates based on payroll records of business establishments. The payroll employment is the most significant indicator of current economic trends each month, together with the unemployment rate. Economists use payroll employment data to predict other economic indicators (the Personal Income, Industrial Production, and Index of Leading Economic Indicators).A higher-than- expected monthly increase or increasing trend is considered inflationary, and can cause bond prices to fall
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This note was uploaded on 09/18/2011 for the course BUS 305 taught by Professor Dr.benjaminyeo during the Spring '11 term at Trident Technical College.

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Bus305 Case Assignment 4 - Jason Roman TUI University...

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