Macroeconomic Forecast - Motorola

Macroeconomic Forecast

Melvin Woodhouse

Economics for Managerial Decision Making - ECO533

Mike Evans

March 30, 2005

Abstract

Annual data was gathered on the United States' Gross Domestic Product and the economic indicators of unemployment, employment growth, inflation, and interest rates. Using 2004 as the base year, forecasts for the next two years were taken from three different forecasting organizations and compared to historical figures. Differences in projected data were addressed as well as relationships between forecasts and among the targeted indicators. The results of the economic forecasts were applied to current Motorola operations and plans. Whether or not Motorola's operations and plans are changed in response to the forecasted information, to avoid threats and take advantage of opportunities, are discussed.

Introduction

Just like the overall health of the human body depends on not only each organ and system working right but their working in harmony with one another so is it with the health of a nation. The economic health of the United States is embodied in its Gross Domestic Product and leading economic indicators, such as inflation or unemployment, are like lab results that give us an idea of just how healthy the economy is.

Economic indicators are Governmental statistics, released on a regular basis, which indicate the growth and health of a country. Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth as well as Real Gross Domestic Product (GDP). Real GDP is so called because the affects of inflation and depreciation are accounted for in the figures.

The state of the economy is important both on a micro and macroeconomic level. On a macro level, those in government pay close attention to these statistics in order to guide fiscal and monetary policy. On a micro level, households can use this data to guide their consumption and investments, while businesses can use this information in their strategic planning. In looking at economic information, there is current data, historical data, and economic forecasts. This enables decision makers to get a more complete picture of economic trends and see the relationship between various economic indicators.

During the course of this paper, we hope to give the reader a better understanding of the economic forces at play that influence this Nation's GDP, in therefore its economic health. We will then use this information and apply it to an organization in terms of possible courses of action that it can take to maximize its profits and be aware of any threats to its profitability.

Historical Data and Forecasted Figures

FED Historical Data (2004) 2005 Forecast 2006 Forecast 2007 Forecast

GDP 10,381 11,235 11,601

Unemployment Rate 5.5 5.3 5.1

Employment Growth 1.0 1.7

Inflation Rate 2.7 2.4 2.4

Interest Rate 5.13 6.25 6.50

Three macroeconomic forecasts of the data identified above, along with historical figures, were gathered from the Congressional Budge Office (CBO), Federal Reserve Bank of

Philadelphia (FED) and the Financial Forecast Center (FCC). The results are as follows:

CBO Historical Data (2004) 2005 Forecast 2006 Forecast 2007 Forecast

GDP 11,730 12,396 13,059 15,940

Unemployment Rate 5.5 5.2 5.2 5.2

Employment Growth 2.6 4.0 4.0 4.0

Inflation Rate 2.7 2.4 1.9 2.2

Interest Rate for 10yr

treasury 4.3 4.8 5.4 5.5

FCC Historical Data (2004) 2005 Forecast 2006 Forecast 2007 Forecast

GDP 10,891 10,150 10,610 11,020

Unemployment Rate 5.6 6.9 7.3 7.8

Employment Growth 1.1 1.1 1.1 1.1

Inflation Rate 2.7 2.5 3.0 3.5

Interest Rate 4.44 5.2 5.5 5.9

Forecast Comparisons

After reviewing the statistical data for the National Economic Forecast from the Financial Forecast Center (FCC), Congressional Budget Office (CBO), and the Federal Reserve Bank of Philadelphia (FED) several relationships between the forecasts can be determined. First of all, each forecast predicts the Gross Domestic Product (GDP) to increase over the next few years. The FCC and FED are predicting steady growth, while the CBO forecasters are much more optimistic in their predictions of much more aggressive growth. Another interesting correlation is the slow, but steady decline in the unemployment rate. This is typical when the GDP is growing, which the CBO and FED have indicated. However, the FCC is predicting an increase in the unemployment rate of the next several years. Perhaps this is due to their mild GDP growth rates. The FCC is also predicting a much slower employment growth rate than the CBO; again this is correlating back to the differences in the anticipated GDP. The rate of inflation for the CBO and FED is also on the decline, whereas the FCC is predicting an increase. Interest rates for each of the forecasts are on a slow, but steady climb. This again is typical for a slowly growing economy, emerging from recession.

Differences in Data

The range of forecasts is not substantial, although you would think historical data would be the same. Obviously the three forecasters