Retail and auto sales Essay

Custom Student Mr. Teacher ENG 1001-04 13 January 2017

Retail and auto sales

In terms of the GDP, most of the analysis that goes towards decline is negative, and rise is positive. In some cases, though, a rise is actually negative, such as the fact that a rise in inflation is negative, or a rise in the price of oil is negative, while a rise in the GDP or personal income could be seen as more positive. It is important to understand these basics before an analysis of the indicators can really proceed. If a person does not understand the basics of economic indicators, they are not going to be able to take their knowledge and do anything with it.

They will be left with a certificate of knowledge, with no personal knowledge to back it up. The most recent figure of a . 06 GDP represents weakness. Unemployment As the above statistic shows, an overall determination of the status of the current US economy is complicated by issues of declining employment as well, particularly in banking sectors. There are definite signs of a slowdown in some areas, but there are other areas that are more optimistic. Many people see room for optimism within this objectively, while others are more pessimistic or cynical about the future and say that things will have to be worse before they can be better.

Actions of the Federal Reserve have helped to shore up some elements of the economy, but underlying problems do remain. As one source notes, “The Fed has quelled the panic that prevailed in the financial markets until recently. But it still has to nurse an economy weighted down by massive bad debts. That is likely to require a period of easier money… with banks hoarding, consumer confidence in the pits, and housing still in freefall, it may be too early for optimism” (Coy, 2008).

Still another source notes that while some elements of the economy may actually benefit from the current situation in terms of job creation, the mass majority of indicators shows a situation in which there are problematic dimensions of unemployment and layoffs such as the ones in the auto industry recently: “As long as the largest asset on household and bank balance sheets continues to deflate, the credit and consumption hits will keep coming. The worst is not over… commodity prices and gold will go up. The loser? Oh, pretty much the rest of us” (Up, 2008).

Of course, this is just one subjective opinion, that seems to be somewhat slanted towards an over-valuation of the housing market’s impact. Retail and auto sales Retail and auto sales have fallen with a fall in consumer confidence, and major US automakers have asked for part of the bailout that is now being sunk into the banking sector. “Aside from questions about the wisdom of government intervention or putting taxpayer money at risk, bailing out Detroit could put Washington in the position of subsidizing job losses” (Auto, 2008).

On the other hand, some argue that a bailout is needed to help this industry. Consumers are spending less on retail than expected, but are still spending. In terms of auto sales, “The car makers have at least 10 assembly plants more than they need to meet demand, according to Oliver Wyman Consulting. That translates to roughly 30,000 factory jobs plus significant numbers of engineers and other salaried personnel. GM estimates it needs to slash its salaried-employee costs in North America by 30%.

” (Auto, 2008). Too many variables can change in the external environment for most prognostications about the future of the US economy to be taken totally literally. What people who do propose to predict the future do, however, is to take the past and present indicators such as those in the auto industry and retail, into account and determine the likelihood of certain scenarios, based on confirmation from past facts and patterns that have held true throughout economic history.

In this manner, those who look to the future can say something like, the economy will recover in a certain amount of time, or will fall again, based on many examples of this happening in the past. In the same way, people look to the past of economic improvements and adjustments to see the future economically. Bank and mortgage failures In terms of bank failures, a major factor was the swaps against sub-prime mortgages that pushed the otherwise profitable company to the brink of bankruptcy.

As the mortgages ties to the swaps defaulted, companies that have since been bailed out such as giants of the banking industry like Washington Mutual and insurance industry like AIG were forced to raise millions in capital. “As stockholders got wind of the situation, they sold their shares, making it even more difficult for these companies and banks to cover the swaps. AIG could has more than enough assets to cover the swaps, but couldn’t sell them before the swaps came due” (A profile, 2008). This has led the government to install a bailout in terms of loans to banks and other companies that have put further stress on the global economy.

In return, the government often becomes a partial holder or owner of the company, getting such perks as “veto power over all important decisions, including asset sales and payment of dividends” (A profile, 2008). The original plan to dissolve one company affected by the bailout, AIG, and sell it piecemeal should be revived as soon as the economy will permit. “The plan was for the Fed to break up AIG and sell off the pieces to repay the loan. However, the stock market plunge in October made that impossible, as potential buyers needed any excess cash for their own balance sheets.

Therefore, the Treasury Department will instead purchase $40 billion in preferred shares from its Capital Repurchase Plan” (Profile, 2008). It is the overall conclusion of this report that the economy is currently experiencing a crisis that is, at the current writing, on the very inside edge of a recession, and that since 2007, the government has made efforts to curb the crisis by first raising and then lowering interest rates, and then setting up a semi-nationalized banking system and the so called bailout fund which helped many companies stay alive.

Stock market The stock market has always risen and fallen with various demand curves. The demand the consumer had in terms of the demand curve then outdistanced the supply, because of many factors in the external environment. There is also the issue of banks and credit, which affects many consumers directly. “The Fed’s latest survey of bank loan officers found a further marked tightening of credit, both in terms of charges and more stringent requirements for borrowers. Some 70% of banks had tightened standards for residential mortgages” (Forsyth, 2008).

Many banks have also lowered interest garnered in savings and money market accounts. And of course, there is also the issue of Iraq, which is also a political issue. Currently, all of these issues are affecting the stock market. At the present time of writing, the stock market has posted modest gains for the day, after a brief rally and then a fall in the early week. The chart shown below illustrates the state of the stock market at the current writing, and can be interpreted as such in viewing. Consumer confidence

Another important theme and issue that affects particularly economic factors in the present is the confidence of the consumer. The future is never set in stone, but present demographic indicators can give commentators some idea of what is going to happen in terms of fiscal policy. GDP refers to Gross Domestic Product, which has slowed down somewhat but is still up in the first quarter. CPI refers to Consumer Price Index, about with the Federal Reserve is involved in terms of predictions about inflation because of interest rates.

PPI refers to production price index, and is going up. In terms of how the economy is doing generally regarding some of these indicators, as one source states, “Consumer spending on goods plunged 2. 6%, but outlays for housing, medical care and other services rose… heading into the second quarter, while overall April payrolls shrunk by 20,000 jobs, services added 90,000… services make up almost 60% of the Gross Domestic Product” (Cooper, 2008).

In other words, while some of the indicators are up, others are down, showing a volatile economy in general.

REFERENCE

Cooper, J (2008). Services: Heavyweight in a hard fight. Businessweek. Coy, P (2008). The Fed may have more cutting to do. Businessweek. Forsyth, R (2008). Corporates boom, tanks tighten. Barron’s. Auto makers force bailout issues (2008). Wall Street Journal. Profile of AIG (2008). http://useconomy. about. com/od/businesses/p/AIG. htm

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