Managerial Economics and Globalization - Research Paper Example

1. Introduction After struggling with a near depression conditions in 2009, the US market is showing slow but continuous growth, and it is expected to continue its rebound, aided by growth in global markets of Asia as well as numerous new economic and monetary policies. The Real Gross Domestic Product, commonly referred to as the GCP, represents the output of goods and services produced by labor and property located in the United States, according to the Bureau of Economic Analysis, or BEA (Gans 2010).

Quarterly, the BEA along with numerous other government and private entities, such as the Bureau for Labor Statistics and the Federal Reserve, release detailed information on the state of the economy that can be interpreted to yield important findings about the macroeconomic state of the US economy, and further yield economic information of particular use to certain states, business sectors, and other organizations concerned with development and analysis of economic trends. 1.1 The current economic conditions Persistent financial difficulties in the second half of 2009 proved challenging for a number of businesses, and the recovery in 2010 is slow and uncertain.

Stimulation of the Asian marketplace in the second half of 2009 largely paved the way for renewed growth, and many economists are optimistic about the second half of 2010 as one that will continue that trend of recovery. Though domestic growth may remain limited over what was seen in the late 1990s and early 2000s, new expansionary budgetary and monetary policies in US and Asian markets are expected to increased global growth (Euler, 2010). These measures are expected to stabilize growth rates in the US market.

The Bureau of Economic Analysis (BEA) published its first estimate of the real GCP for the first quarter on April 30th 2010 and the publication for the second quarter was made on July 30th 2010 (2010). Real GDP increased at a rate of 2.4 percent in the second quarter of 2010, down from the 3.7 percent in the first quarter (BEA, 2010). The GDP in the US increased 0.8000 of 1 percent above the level that existed in the last quarter of 2009. Particularly considering the recession conditions of the previous year, the growth rate of the first quarter was quite impressive and could lead to fulfillment of the BEA’s published 3.

2 percent growth, which seemed somewhat optimistic to many economists, rate if sustained over the four quarters of 2010 (Watkins, 2010). Figure 1 shows the quarter-to-quarter growth of the real GDP from 2006-2010, indicating by positive bars the return to economic growth. Growth slowed in the second quarter of 2010, largely because of the upturn in the residential market, increased federal spending, upturn in state and local government spending, and a pickup in business investments (BEA, 2010).

If growth patterns continue to conform to BEA published estimates, hypothetical increases in real GDP in the third and fourth quarter of 2010, if fulfilled, would be excellent news for the US economy. Monthly data on changes in the price paid by urban consumers in the US for a representative sampling of goods and services is represented by the Consumer Price Indexes (CPI), and employer, import/export, contract, international, and producer price data is also available (BLS, 2010). The CPI increased 0.

3 percent in July 2010 after falling 0.1 percent the previous month. All items except food and energy showed a 0.1 increase in July and a 0.2 percent increase in June, though annual rates of inflation remain much lower than 2009, as shown in Figure 2. The BLS also conducts statistics on unemployment, showing that the total nonfarm payroll employment declines by 131,000 workers as of July, maintaining the annual unemployment rate at a somewhat high 9.5 percent (BLS, 2010). Interest rates have remained low, at 0.

25 percent, throughout 2010, a dramatic drop from the escalating interest rates of the previous year, as seen in Figure 3 (“United States Interest Rate”, 2010). The Consumer Sentiment Index shows improvement after the second quarter of 2010. The Consumer Confidence Index also is gradually improving, as seen in Figure 4, after a sharp drop in the first months of 2010 (“Consumer Confidence Index,” 2010). 1.2 Two Monopolistically Competitive Firms Monopolistically competitive markets have many producers and consumers.

With no single business having total control over the market price. In these markets consumers perceive differences in products other than prices, such as brand, there are few barriers to new firms entering, and producers have some control over price. Some companies, such as the following, can behave like short-term monopolies (Gans et al., 2003). 1. Nike – Producer of sportswear and shoes in a large market with many firms which consumers can purchase from. The company fixes price points higher than many of its competitors and retains sales by establishing a brand name. 2. Stanley Black and Decker – Producer of hand tools and mechanical/electric solutions.

The company fixes prices in the moderate range and supports this with advertising and a known brand name that appeals to consumers. In 2010, both of these firms exercised high product differentiation, low market power, and high short-range profits (often on new product lines) while serving as the price setters for their respective goods in a market with a high number of firms , indicative of a monopolistically competitive firm. 2. Analysis: a. stock performance In 2010, Nike stocks were up to record high levels following a dramatic drop and gradual ascent over 2009, as seen in Figure 5 (“Nike, Inc.,” 2010).

Stanley Black and Decker, Inc retained higher profit levels through 2009 than Nike, comparatively, and has shown a gradual recovery throughout 2009 and 2010, as seen in Figure 6 (“Stanley…,” 2010) b. current and future sales revenue Fourth quarter revenues for Nike, Inc. were up 8 percent versus prior year to $5.1 billion (“Annual Reports,” 2010). With restructuring of Nike operations taking effect in 2010, revenues are expected to increase over the next quarters. Stanley Black and Decker, Inc.

showed a 157% sales revenue increase after its July merger with RCR-Evans, and is expected to maintain these high levels through the next quarters. The 2009 sales revenue for the company was $3.7 billion dollars, down from the previous two years (“Investor Relations Overview,” 2010). c. current and future profits Nike, Inc.’s worldwide futures orders were up 7 percent. Before taxes, Nike, Inc. showed profits of $434.6 in North America alone, and $795.3 globally. Stanley Black and Decker, Inc.

showed gross margin rates of 37.7%, with $184.8 million profit from the second quarter alone (“Investor Relations Overview,” 2010). d. labor costs Nike has paid $1,254.5 million in labor costs, slightly higher than historical averages (“Annual Reports,” 2010). Stanley Black and Decker, Inc. does not have an accessible cumulative figure for labor costs (“Investor Relations Overview,” 2010). e. hiring decisions In March 2009, Nike announced plans to consolidate parts of its global sourcing base in China, Indonesia, Thailand, and Vietnam.

Overseas hiring for these plants has continued throughout the process. Stanley Black and Decker continues to open more domestic jobs (“Investor Relations Overview,” 2010). 3. Summary and Conclusions drawn from the Analysis The global economy, in particular the US economy, dropped dramatically during the 2009 to near-depression states. Most monopolistically competitive businesses showed a drop in profits and revenue over prior years, likely due to poor consumer spending during these periods, causing reductions or holds on hiring.

The year 2010 has been characterized by a gradual but stable recovery, with businesses gearing up to hire both domestically and internationally in response to the improving macroeconomic conditions in the United States and increased consumer confidence and spending. References Annual Reports: Nikes Performance. (2010). Nike. Retrieved from http://invest.nike.com/phoenix.zhtml?c=100529&p=irol-reportsannual (23 August 2010). BEA: Bureau of Economic Analysis. (August 2010). Retrieved from http://www.bea.gov/ (23 August 2010).

BLS: Bureau of Labor Statistics. (August 2010). Retrieved from http://www.bls.gov/ (23 August 2010). Consumer Confidence Index. (August 2010). Chart Database at Market Harmonix. Retrieved from http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm (23 August 2010). Gans, J., King, S., Stonecash, R and Mankiw G. (2003). Principles of Economics. Andover, UK: Thomson Learning. Hermes, Euler. (March 2010) Economic Outlook as of March 2010. EH Hermes ACI Business Reports.

Retrieved from http://www.eulerhermes.us/en/economic-research/economic-research.html (23 August 2010). Investor Relations Overview. (2010). Stanley Black and Decker. Retrieved from http://ir.stanleyblackanddecker.com/phoenix.zhtml?c=114416&p=irol-irhome (23 August 2010). Nike, Inc. (Public, NYSE:NKE). (2010). Google Finance Reports. Retrieved http://www.google.com/finance?client=ob&q=NYSE:NKE (23 August 2010). Stanley Black and Decker, Inc. (Public, NYSE:NKE). (2010). Google Finance Reports.

Retrieved http://www.google.com/finance?q=NYSE:SWK (23 August 2010). United States Interest Rate. (August 2010). Trading Economics. Retrieved from http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=USD (23 August 2010). Watkins, T. (May 2010). A Statistical Review of Current Economic Conditions in the U.S. San José State University Department of Economics Webpage. Retrieved from http://www.sjsu.edu/faculty/watkins/USecon08.htm (23 August 2010). Appendix Figure 1 : Quarter to Quarter Growth in Real GDP (BEA 2010) * http://www.bea.gov/newsreleases/national/gdp/gdphighlights.

pdf Figure 2 : Month by Month Seasonally Adjusted Percent Change in CPI (BLS 2010) * http://www.bls.gov/news.release/pdf/cpi.pdf Figure 3 : US Interest Rate Calendar (“United States Interest Rate”, 2010) Figure 4 : Consumer Confidence Index (“Consumer Confidence Index ”, 2010) Figure 5 : Nike, Inc. Stock Report (“Nike, Inc” 2010) Figure 6 : Stanley Black and Decker, Inc. Stock Report (“Stanley…” 2010)