These are the factors that affect the whole sectors of the economy. Their effects are felt through all the facets of the economy and are usually key economic indicators that drive the economy of the country. Some of these factors are employment rates, personal finances, inflation, gross domestic product, deficit-trade and Budget, exports and imports, home sales, consumer sales (retail index), productivity index and interest rates Forecasts of general economy indicators inflation Inflation- The next one years’ forecast Inflation is the general increase in overall price of consumer goods and services.
Inflation erodes the purchasing power of the currency which is essence means that the consumer’s purchasing power is diminished. Inflation is where there is so much money in the economy chasing very few goods leading to the upward rise of the prices of these goods and services. Inflation usually has the net effect of reducing the living standards of people even though they are earning extra money. The inflation rate is measured using the consumer price index (CPI) The inflation rate in the U. S is expected to hover at around 2% which is a slight drop from last year’s rate of around 2.
7 %( Economist) According to the Federal Reserve Bank, the expected range is 1-2%. Next year inflation rate is above this range. Some of the causes of this include the rising energy prices in the international market. The oil prices have been surging and edging toward the $ 100 a barrel. This has a negative effect on the economy. Inflation – 5 years’ forecast The expected inflation rate in the next 5 years is to average 2. 4 percentage points. This rate of inflation is above the level where the Federal Reserve Bank expects it to be which is between 1-2%. Inflation-20 year forecast
Although it is hard to predict and forecast for a very long time in to the future the expected inflation rate for the 20 years period from 2000-2027 /is expected to remain steady and drop marginally in some years barring any major economic occurrences. We have to appreciate that forecasts into a long future period may not yield very accurate returns hence the difficulties in forecasting the inflation rate. Factors like oil price could substantially change inflation rates GDP (gross domestic product) Year 2008 GDP forecast Gross domestic product is the sum of the total value of all sectors of the economy in a given time period.
It measures the increase in the national wealth of a country In the U. S, GDP measurement is released on a quarterly basis. The GDP of a country measures the value of all additions to the economy by both citizens and non citizens GDP in the US is reported using two forms. The first one is GDP adjusted for inflation and the other reporting method is the one without inflation adjustments The real GDP for 2006 was 2. 6% (from www. bea. gov) The forecasted real GDP for the year 2008 is expected to be 1. 2%. This growth is a marginal drop from the rates realized in 2006 and the expected rate of 2007 which was 1.
8% (Economist) Gross domestic product of a country is affected by factors like inflation, savings of the citizens, charges in terms of trade between countries could also affect GDP rate. GDP-5 years forecast The real GDP growth for the US is expected to average 2. 8% for the 5 year period from 2008 to 2013. The U. S economy has been growing at a lower rate due to wide range of factors. There are different predictions in the GDP by different institutions. This is normal due to the uncertainties in the prediction and use of different forecasting techniques and economic indicators in the prediction.
GDP-20 years forecast The expected real GDP growth for the next 20 years from 2008-2027 at an average of 3% (www. db. research. com) to achieve this rate over the forecast period, the other economic factors should perform well. Unemployment rate Unemployment is a situation where there is skilled manpower that has no meaningful and gainful employment. This occurs when the economy is not able to generate enough jobs and absorb the available skilled workforce. Unemployment leads to low wages in the economy. This is due to the abundance of skilled labor.
The force of supply and demand plays part in lowering wages. Technological advancements in the workplace have lead to many jobs losses. Technology has enabled a person to perform what was done by many people previously. It is the number of unemployed people divided by the employed ones. 2008 forecast The rate of unemployment in the country is forecasted to be at about 4. 70%. This rate is almost the same as that of year 2007 which was 4. 65% on average. These unemployment rates are expected to remain steady in the short run despite the predicted economic growth of 1. 2% in the coming year.
5 years unemployment forecast The overall unemployment rate in the U. S for the 5 years from 2008-2013 is expected to be about 4. 5%. This is not much different from the current unemployment rates prevailing in the country. 20 years forecast The forecast for the 20 years from 2008-2027 in the US unemployment rate is expected to drop marginally from the current rates. This is because the economy is expected to accelerate and hence create more jobs in the different sectors of the economy. The economic growth should be at higher rates than currently witnessed in order to create more jobs.
Deficits There are two types of deficits that can occur in the economy Trade deficits This is when the company imports more goods from other countries than those it exports. This result in the country becoming a net importer of goods and this means that the money that flows out of the country are substantial compared to inflows. A trade deficit is basically an unfavorable balance of trade. The US trade deficit has been widening in the recent past and still is. This has lead to some serious concerns about future well being of the citizens. 2008- Trade deficit forecast
According to the available forecasts the US . trade deficit is expected to drop marginally from the previous rates. It is forecasted to be -4. 8% of gross domestic product up from the 2007’s rate of -5. 4% of the GDP. This means that the balance of payment deficit has reduced and this is better for the economy in general and for the well being of the citizens. 2008-2013- forecast of trade deficit The general trend of the balance of payments account is that it is expected to drop over the 5 year period. It is expected to average -4. 42% of the gross domestic product over 5 years forecast period.
This is not a significant drop in the trade deficit This is definitely good because with this continued improvement it is expected that the deficit will be eliminated in the near future if it continues at the current drop rate. 20 year forecast -2008-2027 It is predicted that the trade deficit will not last forever. However if it continues to persist the investors from other countries will not want to hold their asset in terms of Dollars because of the declining dollar value compared to the other currencies. The Federal Reserve Bank should thus do something about it.
Generally the deficit is expected to drop in the long term because with the increased growth in GDP, exports will definitely be high. Budget deficit Budget deficit occurs when the expenditure exceed the revenues. This deficit leads to the borrowing of monies in order to finance the budget. If the budget deficit is huge it means that the government will borrow large debt from the public and this may drive the interest rates up 1 year budget deficit forecast The federal budget deficit over the next 1 year is expected to drop marginally compared to the current rate.
The current federal budget deficit is 1. 2% of the gross domestic product over the next one year this is expected to remain steady at the rate of 1. 8% of the GDP. At these rates, the federal government borrowing will not affect the underlying interest rates because the deficit is minimal. The overall effect on the economy is minimal. 5 years budget deficit forecast The federal budgets rates over the next 5 years are expected to either remain steadily or drop marginally over the forecast period. Over the 5 years we see a steadily decline in the rates from -1.
7% of GDP in the year 2008 to rate of -1. 1% of the gross domestic product in 2012. This is an improvement in the part of the government in that it is able to reduce the financing gap in the budget. It is expected that the government will balance the Federal budget in the near future 20 years budget deficit forecast The budget deficit forecast is expected to be cleared in the coming few years. It is expected the country will have a budget surplus as early as 2012, this shows a remarkable improvement in the management of the budgetary process and policies by the federal government.
It is expected that the country will have a budget surplus from 2012 onwards with the budget surplus increasing over the period. (Congressional budgets office) Interest rates Interest rates are the rate at which the lenders of credit charge the borrowers of loans. The interest rate is the price paid for the credit, that is, the foregone investment opportunity of the money rent out. Interest rates charges by lenders either banks and mortgage institutions are usually pegged at the Federal Reserve Bank’s bench mark interest rate. The lenders usually base their rates on this Federal Reserve Bank rate.
Any increase on this rate usually leads to an increase in the overall interest rate and vice versa. Forecast for next years’ interest rate The Federal Reserve interest rate has been dropping over the last year. The benchmark interest rate for housing – the federal funds rate has been cut and is still expected to be cut next year in order to spur growth in the housing sector which has been experiencing a slump in home sales. It is forecasted that as long as there is a slump in home sales, the Federal Reserve Bank will continue to cut its interest rates to ease the credit crunch.
Next year the Federal Reserve fund interest rate is expected to be around 4. 5%. Other benchmark interest rates like prime rate are expected to remain the same. No federal cuts are expected. This indication by the Federal Reserve Bank means that it believes that the economy will grow as expected. 5 year forecast 2008-2013 Over the next 5 years, the interest rates are expected to be stable. Depending on the economic performance in terms of GDP, home sales, the interest rates are expected to be adjusted either upward or downward from the current rates. The 3 month commercial paper benchmark rate on average will be at 4.
5% for 2008, 4. 8% in 2009, and 4. 9% in 2010, 2011 and 2012. It is expected to remain at these levels if all the economic factors remain positive. 20 year forecast 2008-2027 The long-term forecast of the interest rates depends largely on the economic performance of the country. Over the next few years, the rates are expected to either be stable or be reduced in order to induce economic growth. In the long term, it is forecasted that it will be lowered and it will hover at around 3%. The other general assumptions about the economy are the retail sales index, home sales, productivities index, and money supply.
PART II Specific company assumptions These are the specific factors that affect individual companies and their overall performance in terms of profitability, long-term existence and future prospects. They are the specific industry determinants. Callaway Golf-Golf Industry It manufactures and sells golf clubs, golf balls, and golf accessories. Its brand names include Callaway Golf, Odyssey, Ben Hogan and Top- Flite. 2008 forecast for the golf industry The Golf industry is experiencing an upswing at the moment and this is due to the growing liking of the sport by people who are young.
In the past Golf was taken to a rich man’s game but with the change in perception the industry is headed for bigger things in the future. Rise in incomes in the developing world has also helped U. S. A Golf equipment manufacturers and Golf Management experts to export more to these countries. Economies like china is fuelling this rise increase in exports. If this trend continues, then the U. S golf industry’s future prospects are bright. For Callaway Golf, however, there are some factors that could affect its financial stability and future prospects.
Some of these factors include customers’ preferences which are subject to frequent changes, product life cycle which is usually between one to two years, the management’s forecasts in order to gauge correct customer demands so that it does not under or over estimate the production levels, Competition from other companies in the industry, reduced customer spending also affects Callaway Golf. The company must address all these factors if the company’s future prospects are to be safeguarded. It can do this by formulating growth strategies and focus on customer preferences.
5 year forecast for the Golf Industry With the current increase in the sales of golf accessories, golf balls, golf clubs the future of the Golf industry is good. This has been due to (as seem earlier) increasing interest in the sport, increase in disposable incomes in developing economies like China. This trend is expected to continue for the next 5 years. U. S Golf manufacturers, Golf management firms are surely poised to reap from this surge in sales. Even in the U. S. A itself, the Golf industry is a multibillion dollar industry and is still growing. 20 year forecast
Increasing sales means financial stability of the U. S. A Golf industry is good for now but with the increasing competition from other manufacturers in other countries in Europe and Asia means that it is bound to change. Innovation and product quality will ensure that they gain market share and maintain. U. S. A Truck –Trucking Industry Deals with the transportation of general commodities through general, regional and dedicated freight divisions. It transports commodities all over U. S. A and some parts of Canada and Mexico 2008 forecast for trucking industry
This industry has been experiencing growth in the recent past and is expected to continue with this trend. This is because of the following reasons; Other transportation modes have been experiencing difficulties, which have hampered their operations. Trucking business is usually suitable for the stock ordering system like Just- in- Time which many companies have adopted because of its cost savings. With the increasing economic growth coupled with increased production of goods, it means that the trucking industry is experiencing a boon. Cross border trading also has helped the trucking industry due to increased volumes of goods
E-commerce is where customers buy goods online which requires to be transported. The Forecast for 2008-2013 in the trucking industry The increasing volumes of commodities to be transported will definitely add to the increase in trucking industry revenues. The industry’s 2008-2017 forecasts is expected to be positive due to the adoption of concepts like JIT by firms hence increased volumes. However, there are challenges in this industry. Key among them is the driver turnover. It has been observed in the recent past that many drivers have been leaving the companies in the tracking industry.
This leads to idle trucks hence lost opportunities. 20 year forecast – 2008 to 2027 Rise in gas prices could lead to increase in freight costs, which may lead to lost business. The recent increase in international oil prices has put pressure on trucking companies’ profit margins. Unless these trends of oil raise reverses, this industry future is under pressure. However, this can be mitigated by use of alternative sources of fuel for example bio diesel. Harrah’s – Casino Industry Is largest provider of branded casino entertainment through its subsidiaries.
It is focused in building loyalty and value to its customers through excellent service products, wide distribution and technology. Industry’s 1 year forecast The casino industry in the U. S. A has been on a steady rise; this has been due to the diversification of the products and services on offer. The industry forecast for the next year is positive according to research done on the industry. 5 year forecast Some of the U. S casino companies have expanded to other countries like the U. K where there are legislations that could limit the overall performance of the industry.
Some quarters also consider the social implications of gambling but with product and service diversification, the industry should be able to generate extra streams of income. Baring any sudden change is legalization covering the casino industry, it is headed for growth. 20 year forecast With most U. S casino companies expanding their branches and acquiring other casinos in developing countries, the long-term effect is that it will grow. Emergence of economies like China and India where the income is average and population large, then expansion into these markets will bring in more revenues into the industry.
PepsiCo – Convenient food and beverages industry The company subsidiaries include Frito-Lay N. A, Pepsi Co. Beverages N. A, Pepsi Co. International and Quaker Foods N. A. It deals with the convenient food and the beverages. Industry’s 1-year forecast The industry 1-year forecast is expected to the same. The market has many other companies hence it is a crowded industry. Consumers nowadays are concerned about their health and the effects of the products they take. The companies in this industry are mostly affected by this.
Therefore innovations and development of healthier products should do the trick in this industry. Most of the companies in the industry have gone this way for example Pepsi Co’s. Pepsi Diet, Coca Cola’s Diet Coke. Most of these multinationals are present in almost every country in the world and so increasing sales poses a challenge. The product innovation focusing on healthy products should increase sales. 5 year forecast The 5-year industry forecast really depends on the product innovation and diversification. This could be done through acquisition of companies that offer different but related products.
Since the market is almost saturated, the performance should be more less the same. 20 year forecast Consumer’s conscience about healthy products and healthy living and the ability of the beverage companies to meet and satisfy consumer wants is key in the industry’s long-term prospects. The industry should strive for healthier living and this may mean incurring huge costs in product innovation. Hershey Foods – Confectionary Industry Involved in the manufacture of candy and chocolate products. It generally deals in sugar confectionary products. 1 year forecast
Sales of confectionaries usually peak during the holiday seasons. Sales also could be boosted by introduction of new brands of the confectionaries. This could be done by flavor fusions, creating international flavors. Consumer’s tastes have been changing and refining hence product innovation could definitely improve sales. With this product innovations could portend an increase in the sales hence the forecast for the next 1-year depends on the new products introduced into the market. Introducing a wide range of products should also cater for consumer different preferences. 5 year forecast
The success of the industry depends much on the introduction of new products that have distinct flavors in order to captivate the consumers and push sales up. This includes the formulation of new ingredient recipes, which will cater for a wider consumer base. The industry is expected to grow marginally over the next five years. The Industry’s 20 year Forecast The industry is expected to grow in the long term
References Economic Intelligence Unit (2007) Economic Data Retrieved 11/03/2007 from http://www. economist. com/countries/USA/profile. cfm? folder=Profile-Economic%20Data G.Kanhaya M. Bakhtiar. (1996) New York. Interest Rates and Budget Deficits: A Study of the Advanced Economies. Routledge F. H. Philip (2000) London. A Concise Introduction to Econometrics: An Intuitive Guide.
Cambridge University Press Kitov I. O (2006) Inflation, Unemployment, Labor force change in the USA Retrieved 11/03/07 from www. ecineq. org www. bea. gov/ Retrieved on 3/11/2007 http://www. cbo. gov/ftpdoc. cfm? index=7731 Retrieved on 3/11/2007 http://www. treas. gov/offices/domestic-finance/debt-management/interest-rate/real_ltcompositeindex. shtml Retrieved on 3/11/2007
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