Question
Please show how to get from A to B G5 Doris Wise is a young career...
Please show how to get from A to B
Answers
(a): The information about the economy that Doris will find helpful are:
- GDP growth rate
- Inflation
- Unemployment rate
- Order book of manufactures
- Industrial production
- Current account deficit
The three items of economic information that I feel are most important in this case are – GDP growth rate, inflation and industrial production. GDP or gross domestic product is the market value of all goods and services produced in the economy. A healthy and consistent GDP growth is a reflection of a strong economy and a strong economy augurs well for an auto stock. Secondly when inflation is high then prices are rising. In such a situation demand will most likely fall. Thus a low inflation rate will be good for the auto sector as a whole. The third factor is the level of industrial production. Factory output is measured by IIP i.e. index of industrial production. High level of IIP is an indicator of healthy economy and hence bodes well for the auto sector.
(b): (1): Auto imports – The auto company stock will be in a better position if the level of auto imports is low and the market demand is largely satisfied by domestic players. This will give the selected auto stock a better grip of the market.
(2): The United Auto Workers union – This is also an important factor or element for the auto industry. F the union is too strong and makes unreasonable demands or goes on strikes for too long then the interest of the auto industry will be harmed in the long run.
(3): Interest rates – This is also an important factor. Low interest rates will propel demand while high interest rates will keep demand subdued.
(4): The price of a gallon of gas – This is also an important factor. Sustained levels of high gasoline prices will keep the demand for vehicles muted as it will increase ownership costs. On the other hand low levels of gasoline prices will keep cost of ownership low and this will propel demand for new vehicles in the economy.