Gift and Novelty Economics Forecast Essay

This essay has a total of 1272 words and 8 pages.

Gift and Novelty Economics Forecast

Economic Forecasts

The retail consumer market must take into consideration many indicator forecasts that help
estimate what the economic market will be like for the future. The following information
contains two or more forecasts based on our teams six pre-selected indicators. This team
will provide reconciliation between both forecasts and will apply economic theory in
deciding which one may be the most relevant to the gift and novelty industry.


GDP

Information retrieved from the Economist
Intelligence Unit Data Services (2005), the GDP (in billions) is expected to be 13034.5 in
2006 and 13766.2 in 2007. However, according to the data retrieved from the Blue Chip
economic indicator, the forecasted GDP (in billions) is 12907 for 2006 and 13617 in 2007
(The White House, 2005).


Foreign investment is a factor that is increasing the overall GDP. Over a period of time
this will eventually bring higher gross domestic investments, resulting in more productive
physical capital in the U.S economy. The additional capital will make labor more
productive, which provides an increase in GDP and wages. Based on this information, it is
thought that the EIU forecast is more correct than the Blue Chip indicator.


Unemployment

Unemployment is another area that can affect this industry. Data retrieved from the
Economist Intelligence Unit (EIU) projects that the unemployment rate in 2006 will be at
5% (Economist Intelligence Unit, 2005). Data derived from the Blue Chip consensus
indicator, however, projects the unemployment rate for 2006 will be at 5.2% (The White
House, 2005).


By taking into consideration many outside indicators, such as the GDP—that show a slow
but constant growth, will allow private investment to remain constant. This will encourage
private industry to maintain their employment at a constant level. In understanding what
this nation faces in the near future, this team recognizes that many of the Baby Boomers
will retire, which reinforces the premise that unemployment will eventually stay at or
fall below 5 %.


Housing Starts

Housing starts seems to be one of the most visible in regards to economic growth. Based on
the analytical tables provided by National Association of Home Builders (NAHB) and Steele
Analytics, 2005 and 2006, housing starts will decline slightly. NAHB shows that 2005
housing starts (in thousands) at 1,969 decreasing in 2006 to 1,855 (NAHB, 2005). Steele
Analytics also shows housing starts (in thousands) for 2005 start at 1,883 with a slight
decrease in 2006 to 1,825 (Steele Analytics, 2005).


It would appear that the Steele Analytics table, by comparing the data from various
sources, would be the most accurate, because the NAHB Web site is controlled by a single
association that has a large interest in showing positive forecasts for housing starts.


Interest Rates

The interest rate is also an indicator that is very visible in regards to the health of
the overall economy. The projected forecast, estimated by 56 economists for the Wall
Street Journal, is that the Federal Funds rate will increase three more times, each by
0.25% over the next 12 months (Gerena-Morales & Hilsenrath, 2005). It is difficult to say
when, but it is evident that the interest rates are increasing and the trend will
continue.


These rate changes are a double-edged sword for some as we see an almost immediate rise in
short term lending rates, but the M2 sector will begin to receive a higher rate as well.
M2 has expanded recently, but the pace has been rather slow due to slower rising rates on
the current market rates.


Personal Income

The real personal disposable income percentage, according to The Economist Intelligence
Unit (EIU) forecasts are those 2006 changes will be at 3.5% (Economist Intelligence Unit,
2005). Similarly, a forecast from the Labor Statistics Bureau of Economic Analysis
suggests that the annual percent change for 2006 will be closer to 3.4% (Caranci, 2005).


Our Team suggests the 3.4% forecast would be the most appropriate. To come to this
conclusion, this team has taken into consideration current events. Because of the added
cost of fighting terrorism and the current fiscal policy, which has instilled tax cuts to
millions, to pay for these expenses there is certainty that tax laws will be adjusted in
the near future. By having tax laws adjusted, which may result in tax increases, will
affect every Americans' real disposable income level.
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