Gift and Novelty Economics Forecast

Economic Forecasts

The retail consumer market must take into consideration many indicator forecasts that help estimate what the economic market will be like for the future. The following information contains two or more forecasts based on our teams six pre-selected indicators. This team will provide reconciliation between both forecasts and will apply economic theory in deciding which one may be the most relevant to the gift and novelty industry.

GDP

Information retrieved from the Economist

Intelligence Unit Data Services (2005), the GDP (in billions) is expected to be 13034.5 in 2006 and 13766.2 in 2007. However, according to the data retrieved from the Blue Chip economic indicator, the forecasted GDP (in billions) is 12907 for 2006 and 13617 in 2007 (The White House, 2005).

Foreign investment is a factor that is increasing the overall GDP. Over a period of time this will eventually bring higher gross domestic investments, resulting in more productive physical capital in the U.S economy. The additional capital will make labor more productive, which provides an increase in GDP and wages. Based on this information, it is thought that the EIU forecast is more correct than the Blue Chip indicator.

Unemployment

Unemployment is another area that can affect this industry. Data retrieved from the Economist Intelligence Unit (EIU) projects that the unemployment rate in 2006 will be at 5% (Economist Intelligence Unit, 2005). Data derived from the Blue Chip consensus indicator, however, projects the unemployment rate for 2006 will be at 5.2% (The White House, 2005).

By taking into consideration many outside indicators, such as the GDP--that show a slow but constant growth, will allow private investment to remain constant. This will encourage private industry to maintain their employment at a constant level. In understanding what this nation faces in the near future, this team recognizes that many of the Baby Boomers will retire, which reinforces the premise that unemployment will eventually stay at or fall below 5 %.

Housing Starts

Housing starts seems to be one of the most visible in regards to economic growth. Based on the analytical tables provided by National Association of Home Builders (NAHB) and Steele Analytics, 2005 and 2006, housing starts will decline slightly. NAHB shows that 2005 housing starts (in thousands) at 1,969 decreasing in 2006 to 1,855 (NAHB, 2005). Steele Analytics also shows housing starts (in thousands) for 2005 start at 1,883 with a slight decrease in 2006 to 1,825 (Steele Analytics, 2005).

It would appear that the Steele Analytics table, by comparing the data from various sources, would be the most accurate, because the NAHB Web site is controlled by a single association that has a large interest in showing positive forecasts for housing starts.

Interest Rates

The interest rate is also an indicator that is very visible in regards to the health of the overall economy. The projected forecast, estimated by 56 economists for the Wall Street Journal, is that the Federal Funds rate will increase three more times, each by 0.25% over the next 12 months (Gerena-Morales & Hilsenrath, 2005). It is difficult to say when, but it is evident that the interest rates are increasing and the trend will continue.

These rate changes are a double-edged sword for some as we see an almost immediate rise in short term lending rates, but the M2 sector will begin to receive a higher rate as well. M2 has expanded recently, but the pace has been rather slow due to slower rising rates on the current market rates.

Personal Income

The real personal disposable income percentage, according to The Economist Intelligence Unit (EIU) forecasts are those 2006 changes will be at 3.5% (Economist Intelligence Unit, 2005). Similarly, a forecast from the Labor Statistics Bureau of Economic Analysis suggests that the annual percent change for 2006 will be closer to 3.4% (Caranci, 2005).

Our Team suggests the 3.4% forecast would be the most appropriate. To come to this conclusion, this team has taken into consideration current events. Because of the added cost of fighting terrorism and the current fiscal policy, which has instilled tax cuts to millions, to pay for these expenses there is certainty that tax laws will be adjusted in the near future. By having tax laws adjusted, which may result in tax increases, will affect every Americans' real disposable income level.

Retail Sales

Internetretailer.com conducted a survey in May 2005 on the future of online retail sales. The survey revealed 35.2% of 268 merchants and others expect revenue to increase at least 35% over the next year. 21.7% of chain retailers are hopeful in that they see online sales increase 100-200% five years from now (Brohan, 2005). In 2001, Jupiter Media Metrix forecasts that by 2006, 63% of people who access the internet will make purchases (About, 2005).

Our team feels that 63% is the most accurate based on the internet traffic and number of households with internet access. Convenience plays a large role in today's society and the internet is a 24 hour operation allowing consumers to shop at anytime.