Interpreting Macroeconomic Conditions

Macroeconomics

The four indicators that I have chosen to analyze are the core CPI, the unemployment rate, the real GDP growth rate and the Fed funds rate. According to the Bureau of Labor Statistics, the core CPI increased 0.2% in Oct; 0.2% in Sept; 0.1% in Aug and 0.1% in July. The unemployment rate in November was 8.6%, compared with 9.0% in October, 9.1% in September and 9.1% in August.

The real GDP growth rate, as compiled by the Bureau of Economic Analysis was 2.0% in Q3 of 2011, compared with 1.3% in Q2 and 1.8% in Q1. The Fed funds rate has ranged between 0.07 and 0.08 for the past two months, and the target has remained in the 0-0.25 range for a few years now.

What these figures show is that the American economy is more or less stagnant. There have been slight improvements in the unemployment rate and the GDP, but in general the economy remains mired at the same relatively poor performance levels that it has been in recent years. The Fed funds rate remains very low, and there is only a minor level of inflation in the economy, especially in the core CPI.

Two retailers that compete against each but have different business models are Wal-Mart and Amazon. In the short run, Wal-Mart is likely to see benefit from the weak economy. The Fed is currently providing ample monetary policy stimulus, but for the most part the economy is either treading water or making only minor improvements. The expected short-term impact for each of these firms is expected to be the same, and minimal. The reason why the economic impact is minimal is because the general state of the economy has changed little in several months. Thus, fast-moving companies like Amazon and Wal-mart will have made adjustments to match the prevailing demand conditions. Thus, both of these companies should be in a state of equilibrium with respect to aggregate supply and aggregate demand at this point. When the recession first broke a few years ago, both of the companies would have likely found themselves with excess inventory, so that AS is above AD on the graph. Over time, however, either demand has risen or the two companies have simply adjusted to their new long-run economic reality. As a result, both firms should be in equilibrium at this point in the long, slow recovery.