Economic Analysis: General Dynamics Part 3
Requirement:
Your third analysis paper is about the macroeconomic variables affecting firm or industry performance. Using your company selection, complete the following main elements:
Identify three to five macroeconomic variables that affect the demand for and/or supply of the products or services produced by your company or industry. For example, if you are analyzing a consumer product, such as television sets or computers, you might include consumer income, energy prices, wage rates, and interest rates.
Find historical data (three to five years) for these variables for one of the countries in which your company or industry has a major presence. Develop your own graphs and/or tables showing the data, and discuss how the variables have changed over the period you are examining. Do not copy and paste data from other websites, but use the available data to create your own table or graph.
Compare changes in the macroeconomic variables to changes in the company data you collected in analysis papers one and two. What observations can you make about the effects of movements in macroeconomic variables on the company’s performance?
Use full info:
The third Economic Analysis paper asks you to select two to four of the macroeconomic variables that influence supply or demand for the products or services produced by the company you identified in the first paper and analyze the relationships over the past few years. For example, can you observe a positive or negative correlation between consumer income or GDP and sales of the products identified? Have lower interest rates affect investment decisions? What has been the effect of stagnant wages on production costs?
Macroeconomic data on the US economy is readily available from numerous government websites. I highly suggest relying on these websites. This week I will introduce you to a few of the ones that you may find the most useful.
GDP or gross domestic product.
GDP is the broadest measure of a nation’s economic activity. It is the estimate of the value of goods and services produced within the economy over a given period of time, such as a quarter or year. The U.S. Department of Commerce, Bureau of Economic Analysis (BEA) is charged with developing estimates of GDP.
The BEA’s website can be found at:
https://www.bea.gov/
The most recent data on US GDP is for second quarter 2015. An advance estimate was released the end of July. Later this week, a second estimate will be released that will contain adjustments to the advance estimate based on additional data and information collected and analyzed throughout the past month.
In addition to providing data on GDP, this website has information on personal income, disposable personal income, consumer spending, business investment, international trade flows, regional and metro area income, GDP by industry, and estimates of inflation.
To find historical data on GDP or other macro variables published by BEA, click on the “Interactive Data” link along the top of the homepage, select the database (e.g., GDP and Personal Income), and follow the links.
If you are selecting macroeconomic data related to wages, salaries, employment, unemployment, consumer prices, or wholesale prices, the website to use is
https://www.bls.gov/
It is maintained by the U.S. Department of Labor, Bureau of Labor Statistics.
Most of the data provided by the BLS is monthly data.
When developing charts and tables that compare various data sources, be sure to put them into the same time period. That is, if you want to compare quarterly (or annual) profits and sales for your company to GDP and wage data, make sure the GDP and wage data are also quarterly or annual. Otherwise, it is difficult for the reader to compare the variables.
If you want to put data into a chart and their units are widely different, I suggest using index numbers or using graphs that have different units on the two vertical axes. Otherwise, it becomes difficult for the reader to see how the trends relate to each other.
Another macroeconomic variable that influences purchasing and investment decisions is the “interest rate.” While there are numerous interest rates rather than a single one, the overall level of the interest rates is influenced by monetary policy, inflation, and similar macroeconomic variables.
A nation’s central bank or monetary authority is often the entity that oversees monetary policy, which determines the availability of liquidity in financial markets. Interest rates are determined by the supply and demand for loanable funds, and as liquidity becomes more or less available, interest rates fall or rise.
Inflation rates directly affect market interest rates, especially longer term rates. The market interest rate is often broken down into two components–the real interest rate and the inflation rate. The real interest rate measures the purchasing power of principal plus interest.
Market Interest Rate = Real Interest Rate + Inflation Rate
If investors or lenders expect inflation rates to rise over time, they will add an inflation premium to the market rate of interest to offset its affect on the purchasing power of future principal and interest payments.
In the United States, The Federal Reserve System (the Fed) is in charge of monetary policy. The Federal Open Market Committee (FOMC) meets about 8 times a year to set monetary policy. Immediately following each FOMC meeting, a news release is made that summarizes the decisions made by the committed. A few weeks later a more detailed report of the discussions is published.
The Federal Reserve’s website has data on the money supply, various interest rates, including the discount rate (the rate at which banks can borrow from the Fed to meet their reserve requirements), the federal funds (fed funds) rate (the inter-bank overnight lending rate), mortgage rates, and others.
Here is a link to its website.
https://www.federalreserve.gov/
The Federal Reserve Bank of St. Louis maintains the Federal Reserve Economic Data (FRED) resource that is an excellent resource for obtaining macroeconomic and related data for the United States. It contains the data from the BEA, BLS, and Federal Reserve system as well as other government sources.
Depending on the data series, you have options in terms of frequency (e.g., monthly, quarterly, annually), real (inflation adjusted) versus nominal, seasonally adjusted, and so forth.
If you are having trouble finding a specific data series from other sources, I suggest searching FRED to determine if it is available there.
Here’s the link to the database
https://research.stlouisfed.org/fred2/
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