Finance project v5

Project I Example Fin 353

Economic Analysis

(THIS EXAMPLE IS COMPLETELY MADE UP. DO NOT FOLLOW THE ANALYSIS. IT IS ONLY FOR

VISUAL PURPOSES TO UNDERSTAND HOW TO PREPARE YOUR ECONOMIC OUTLOOK PAPER.)

The first indicator is the spread between Baa and Aaa Corporate bonds. The larger the spread the

greater indication the US economy is in a recession or headed toward one. Based on Figure 1 the spread

is below historically averages of 10%. Therefore, the spread is indicating the US is in a bullish state.

Figure 1: Spread

The yield curve suggests the direction of interests. Figure 2 lays out the yield curve for October

27 th

. Figure 2 suggests the yield curve is flat meaning market participants are expecting interest rates to

stay flat or decline modestly. This means that the economy is ________________.

Figure 2: Yield Curve

Loans are an important indicator of the expansion of credit by the banking system. As banks

increase credit businesses expands, hire more people, and economy grows. Figure 3 displays the annual

growth rate of business loans.

0

0.02

0.04

0.06

0.08

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

1 /1

/2 …

Baa-Aaa Spread

Spread

0

0.05

0.1

0.15

Yield Curve

Yield

Figure 3

Historically the growth rate has averaged __________. Today the growth rate is far about the average

and it is growing. This is bullish for the US economy.

The money supply growth rate indicates where inflation and the economy are headed. Typically

high money supply growth rate leads to economic growth. The figure below indicates that money supply

is falling and falling below its moving average. This is a negative sign for the US economy.

Figure 5: M2 Growth Rate: 4 year average vs. 1 year average

(I have not included all the figures. Just a subset. Hopefully you get the idea of how to create an

economic report. Present the analysis with the graphs and tables embedded in the document. Then

conclude with a summary and discussion.)

After analyzing all seven indicators we forecast robust economic growth for the US economy. Interest

rate date suggest __________. This means that _______. Growth in commercial and industrial loans

suggest _______. This means________. The bid cover ratio suggests. This means investors do not want

to buy Treasury securities which could lead to higher interest rates in the future.

(Go through what each indicator signals and develop the reasoning behind your forecast.)

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

1 9

5 4

-1 0

-0 1

1 9

5 4

-1 1

-0 1

1 9

5 4

-1 2

-0 1

1 9

5 5

-0 1

-0 1

1 9

5 5

-0 2

-0 1

1 9

5 5

-0 3

-0 1

1 9

5 5

-0 4

-0 1

1 9

5 5

-0 5

-0 1

1 9

5 5

-0 6

-0 1

1 9

5 5

-0 7

-0 1

1 9

5 5

-0 8

-0 1

1 9

5 5

-0 9

-0 1

1 9

5 5

-1 0

-0 1

1 9

5 5

-1 1

-0 1

1 9

5 5

-1 2

-0 1

1 9

5 6

-0 1

-0 1

1 9

5 6

-0 2

-0 1

Growth Rate in Business Loans

0

0.02

0.04

0.06

0.08

0.1

0.12

Ja n

-…

F e

b -…

M a

r…

A p

r- …

M a

y …

Ju n

-…

Ju l-

0 8

A u

g …

S e

p -…

O ct

-…

N o

v …

D e

c- …

Ja n

-…

F e

b -…

M a

r…

A p

r- …

Money Supply Growth Rate