Microsoft Word peachtree case study
Change in Business Inventories
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| Change in Business Inventories, 58.2 ‐1.7 ‐13.3 37.9 29.5 36.8 $bn, chained 2000 prices (ann. Rate) Net Exports, $ bn, chained 2000 ‐645 ‐614 ‐618 ‐655 ‐661 ‐665 prices (annual rate) Industrial Production 3.8 1.6 1.4 5.3 5.3 5 (% Change, Year on Year 3.1 2.7 3 3.4 4.2 Consumer Prices 2.5 3.7 5.5 3.2 2.2 4.6 (% Change, Year on Year 3 3.8 3.7 3.7 3.9 Producer Prices 2.8 4.4 6.5 7.3 ‐0.7 3.7 (% Change, Year on Year 4.1 5.5 5.2 4.3 4.1 Unemployment Rate , % 5.2 5.1 5 5 4.7 4.7 3 Month Treasury Bill Rate, % 2.8 3.1 3.5 4 4.5 4.9 10 Year Treasury Bond Yield, % 4.5 4 4.3 4.4 4.9 5.2 2005 2006 Page 35 of 141 2.7% growth is still a very good number. The consumer price index, which measures inflation, spiked to 4.6% in the second quarter after a 2.2% first quarter. This number can largely be viewed as energy driven. The producer price index, which measures inflation at the wholesale level and is often viewed as inflation in the economic pipeline, also jumped to 4.7% after a first quarter decrease. Many numbers can be viewed as positive. Disposable personal income jumped from 1.5% to 2.1%. Business investment still remains at a strong 8.3% (down from a strong first quarter admittedly. Business inventories jumped from a 29.5 to a 36.8, a sign that businesses are confident that demand for their products are increasing. Industrial production continues a surge that began in the fourth quarter of 2005. There are signs of concern that should be worthy of attention. The persistence of high gas and oil prices into the second quarter of 2006, after several years of double digit percentage increases and anticipated new record highs in the following summer months, is finally leading to higher prices in the broader economy. External shocks threaten to exacerbate domestic economic problems. The threat of energy supply disruptions in the Middle East, could keep energy price inflation on the rise. This is bad news for the Federal Reserve, as it means current inflation trends are becoming more entrenched in the rest of the economy and will soon start to filter into expectations about future inflation. The Fed has very little, if any, control over global energy prices and energy supply and there is a growing sense among consumers and businesses that the rise in energy prices is more permanent than they thought, and they are starting to adjust their spending and supplier contracts accordingly. To that end, the Fed has been on an aggressive tightening campaign. The Fed raised interest rates five times is 2004, eight times in 2005, and has already raised rates four times in 2006. The most recent rate increase was on June 29 seeing the Fed raise the discount rate to 5.25% on overnight. This has seen the discount rate increase four percentage points from June of 2004 to June of 2006. There is concern among some that the Fed may have overcorrected in this process, raising the probability of economic difficulty in 2007. In order to contain inflation, the Page 36 of 141 Fed may end up pushing rates too high, triggering a housing market and consumer lead recession. It is important tore state that Peachtree Plumbing is a local company deriving the majority of their revenues from local customers. The overall health of the local economy is much more impactful on the health of the company than the national economy. However, the national economy does impact the company in a broader sense in areas such as inflation and energy prices, both of which have an impact on Peachtree’s success. Download 0.84 Mb. Share with your friends:
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