For this Module, think about macro-economic indicators of performance, and how recent changes in these indicators have affected the performance of your organization. For example, how does the change in GDP affect the sales, profitability, expansion plans or competitiveness of your organization. Or, as another example, has the rise in the national rate of unemployment had any affect on your organizations’ operational performance or management decisions?
Below are three examples of what is required for this assignment. The first two are examples of correct approaches and the third is an example of an incorrect approach.
Sample Mini-Analysis (1):
My organization is a beauty shop/spa that caters to middle class women. With the recession and rise of unemployment the shop has had decreased revenue and profit. This has been particularly true of the spa part of the business because that is more of a luxury service than the simple haircut and coloring end of the business.
Notice that the primary focus was on how this macro-economic indicator has affected the business. This is a good example of the approach to take.
Sample Mini-Analysis (2):
I will begin with the Employment Cost Index (ECI) and why it is important to the well being of TLMP. Companies such as TLMP must be able to anticipate inflation and the impact it will have on currency exchanges and how that would impact their international production and trade. The reason ECI is of less importance to TLMP then some of the other indicators, is because it is a lagging indicator. Albeit important, it is not an indicator that will provide advance data that would allow TLMP to make a change in plans to account for an anticipated change in economic policy.
Notice that the above emphasizes the effect the ECI will have on the costs to TMLP and management has to engage in planning if these costs are expected to increase. It also demonstrates that even though ECI is an important index it is limited in its ability for TMLP management to use it because it does not provide the data in time for the company to use it for its planning. This is a good example of the approach to take.
Sample Mini-Analysis (3):
The management of Pleble Corporation uses the Retail Sales report for its planning. They compare the sales of Pleble on a month to month basis, and break it down by its various product lines to spot where sales are falling or increasing.
Notice that this is NOT a correct focus. There is an important macro-economic indicator called the Retail Sales Report but the above analysis, after mentioning it, goes into a discussion of Pleble’s sales report, and that is not a macro indicator because it is only about one company, not the entire economy. The proper focus would have been to utilize the national sales report in a way that would have helped Pleble management to forecast where their sales may be going in the near term future. For example, the downward tend of retail sales over the past 5 months indicates that Peble should reduce their inventory.
There are literally thousands of macro-economic indicators that are reported. Keep in mind that a given organization, such as a home builder, may be affected by housing starts, even though that indicator may have no affect on a defense contractor. The link to Investopedia just below lists 25 of the most commonly used macroeconomic indicators.
1. Select three macro-economic indicators that you feel have the greatest impact on the operations and/or planning for your SLP organization. Remember that an economic indicator measures a change in the general or in a specific aspect of the economy and and you should be assessing how each macro-economic change you have chosen affects your company. Explain why they are important to the current or future condition of your organization.
It is always good to use at least one indicator that measures your industry, like housing starts if you are looking at a realtor or construction company, but if you cannot think of any that applies to your SLP company then use GDP, CPI, and retail sales. One restriction; Do not use interest rates on this question because it is the subject of the second question.
The Federal Reserve has written an interesting article on yield curves as a leading economic indicator and this should be read to answer question 2.
2. In the module 1 case you learned about Federal Reserve policy regarding their ability to influence interest rates. In the module 2 case you learned about the yield curve and interest rate theory. Put this knowledge to use in answering the following question. If the Federal Reserve decided to raise interest rates how would this affect your SLP organization? Address areas such as sales, profitability, ability and cost of using debt to finance investment or other needs. What you
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