GDP, Retail Sales, and Pharmacy

¶ … GDP, retail sales, and pharmacy sales to determine if Walgreen Co. represents a good investment opportunity. Findings indicate that the economy is stable and pharmacy sales still have very large market potential. Based on this analysis, Walgreen warrants investment consideration.

The following table outlines GDP forecasts for 2005-2006 from four different sources. The Federal Open Market Committee publishes a range of forecasts based upon their members' input. A "central tendency" is also published to try to eliminate any high and low extremes. The other forecasts come from the Survey of Professional Forecasters, the Congressional Budget Office (CBO) and Wachovia Bank (fig 1).

Figure 1 - Real Gross Domestic Product

Annual Forecasts (% increase if positive, % decrease if negative)

2005 2006 Forecast Date

Fed (FOMC) 3-3.75 3.25-3.75 July 13, 2005

Central tendency 3.5) (Central tendency 3.25-3.5)

Survey Professional 3.7-3.4 Aug 15, 2005

Forecasters 3.4-3.3 May 16, 2005

CBO 3.7-3.4 Sept 2005

CBO 4.1-3.0 Sept 2004

Wachovia 3.5-3.1 Sept 13,2005

Wachovia 3.3-2.6 July 18, 2005

Forecast differences may stem from timing of the studies, interpretation of economic data or the use of different trending information to look at future real GDP numbers based on prior results. The CBO points out that the major differences between the estimates occur at turning points in the business cycle. The forecasters all had trouble predicting when a turn would happen, even though they knew the turn was coming.

The Livingston Survey suggested a rise in retail sales to 365.5 (mil) through 2006, an estimate of about 6% increase. Whereas, the Blue Chip indicators forecasts a rise of an overall 3.4% through 2006 and 2007. Finally, predicted values for retail sales provided by the Financial Forecast Center (2005) with information obtained through the Census Bureau retail sales data, forecast that retail sales will show an increase and then a steady decline through the rest of 2005-2006 of, respectively, 334 to 404 to 308 (numbers in millions).