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Learning Group Project Prior to speaking about a specific fiscal or economic policy I would like to note that the main reason for their use is to uphold stable upward US economic development. Here let me show you a snapshot of the main financial indicators of the US economic health. One must not forget that even though each indicator has a different impact on each individual company, in general, all companies move in similar direction should the economy deteriorate or ameliorate. Gross Domestic Product. As the barometer of the US total output of goods and services, GDP is the broadest of the nation's economic measures. Despite a raft of problems in Asia, Russia and Latin America last year, the U.S. economy managed to post strong growth. During the year 2004 GDP may not be as kind.
Consensus estimates are for growth of 2.3%. Job Growth. A key to understanding consumer sentiment is job growth. Consumers feel more at ease when the job market is expanding. But when job growth contracts to 100,000 or less month to month, this might be a sign for the economy to head for a slowdown. Currently, this indicator bodes well for the economy.
Consumer Confidence. The Conference Board maintains this index of consumer sentiment based on monthly interviews with 5,000 households. After hitting historical highs last summer, the index has been falling. Monthly Retail Sales. For the big picture in retail sales, one has to check out the monthly reports from the Census Bureau and watch for changes in the trend line. After falling this summer, sales have rebounded, indicating that consumers are still in a generous mood. The Census Bureau reports retail sales figures monthly, but if one wants to know how sales are going before that, one has to take a look at LJR Redbook's retail averages. The numbers are based on interviews with managers at a wide range of stores.
Retailers typically plan for 5% year-to-year growth in same-store sales. Lately the figure has been only 4%. Earnings Growth Rates. Historically, earnings have been a key factor in determining share prices. Lately, the correlation has been less pronounced, but the numbers still give investors a sense of the economy's strength. Interest rates certainly are considered to be the most important macroeconomic monetary policy tool used by Fed to control the economic activity in the USA.
The primary reason why this policy tool is so important is because it shows the price of money that can be borrowed from the central bank by regular banks and in turn be lent to consumers. The lower the interest rates are the cheaper are the money, and therefore the more money are present in the economy. As a result the borrowing becomes easier and cheaper. The companies start to borrow money with much ease for their development and this usually allows the whole US economy grow fast. Airline profitability is a minor economic indicator, whose importance still must not be underestimated. Everybody uses airplanes these days.
Starting from the fedEx overnight delivery service, to regular tourist and family trips, the use of airplanes is very important. Airline companies are the greatest consumers of oil in the USA, thus airline economic health speaks about the current demand for oil. In other words, if airline companies have extremely low profitability, they are more likely to reduce the number of flights and possibly reduce the amount of consumed oil. In conclusion I would like to say that the interest rates serve for the US economy as a gas pedal serves for the car. Whenever the interest rates are reduced (cut), the US economy has cheaper money to take a risk with and therefore, more companies expand during the period of low interest rates. As a result the US economy expands during the low interest rates times. Whenever the interest rates are raised, people become reluctant to borrow at high cost, and if their business ideas fail, to become indebted and locked in high rate brackets.
The airline profitability has a primary effect on the airline industry dependent companies namely tourist agencies, and oil companies. Being a wonderful employer, the reduced profitability in airline industry causes massive layoffs and therefore is negatively correlated with the unemployment rates (i.e. Should the airline profitability reduce the unemployment rates increase). Bibliography: Thomspon, Andrew, The US macroeconomics, McGraw Hill, 2002..
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