Macroeconomic Forecast Paper

Macroeconomic Forecast Paper
The Ford Motor Company
November 16, 2004

Economic indicators and forecasts are an integral part of any corporation 's everyday business. They help management implement present and future endeavors. This information can be used to make adjustments to improve present situations or to determine plans for future plans. Team B will analyze three plans for the Ford Motor Company. Those plans are expansion into China, research programs and fuel efficiency vehicles. Team B will use various economic sites, like the Mortgage Banker 's Association site, to decipher forecasts on six economic indicators. Those indicators are gross domestic product (GDP), employment growth, unemployment, housing starts, retail sales and interest rates. Team B will compare and contrast this information to recommend any needed adjustments to Fords three operations. In researching the economic forecaster 's reports, Team B found the following the differences in the statistics: The Congressional Budget Office uses monthly data published by the Board of Governors of the Federal Reserve System to calculate two-year averages of nominal short and long term interest rates. The forecast of short term interest rates were compared using historical values for two measures of the interest rate on three- month treasury bills: the new-issue rate and the secondary market rate were used. The forecast shows the new-issue rate corresponds to the price of three-month bills auctioned by the department of treasury, meaning it reflects the interest actually paid on that debt. The Congressional Budget Office 's secondary market rate to the price of the three-month bills traded outside the treasury auctions. The Federal Reserve daily financial activities are weighted averages of rates on brokered trades. The weekly figures are averages of 7 calendar days ending on Wednesday of the current week and monthly figures includes each day of the month and both are annualized using a 360 day year or bank interest. The Federal Reserve pulls it data from several different data banks from all The Federal Reserve Banks that gives all the financial statistics. Forecasting gives us a future outlook on many indicators in the economy. There are different types of forecasting sources used to predict the futures rates. Team B has focused on four types of sources. These sources include Congressional Budget Office, Federal Reserve, Mortgage Banker 's Association and the Conference Board. As the research was conducted on the four forecasts, Team B was able to gather the similarities among the four forecast sources researched.
The Congressional Budget Office (CBO) forecast provided information on most of the indicators we chose to focus on. CBO projected that the unemployment rate will reflect the gap between GDP and potential GDP over the medium term. Between 2006 through 2014, CBO estimated the unemployment rate to average at 5.2%. Over the 2006-2014 period prices will grow. CBO projects are at an average, as measured by CPI-U and 1.7% as measured by the GDP price index. This outlook reflects CBO 's view that the Federal Reserve will be able to maintain the rate of CPI-U inflation between 2.0% and 2.5% on average. This forecast shows the connection between CBO and the Federal Reserve. CBO projections on interest rates show that real rates in 3-month treasury bills and 10-year treasury notes during the 2006-2014 period will average 2.4% and 3.3%.
The Mortgage Banker 's Association forecast focuses more on housing starts, interest rates and unemployment rates. According to the Mortgage Banker 's Association the unemployment rate starts at 5.5% in 2004 and stays at 5.3 throughout 2005, 2006 and 2007. Thousands from 2004-2007 measure housing starts, housing starts range from 1968-1651 thousand dollars. Interest rates on 30-year fixed rate from 2004-2007 ranges from 5.9 to 6.9.
The Conference Board also focuses on unemployment rate. For 2004-2005 the unemployment rate was forecasted to range between 5.6 and 4.6 percent. Each indicator we have focused on relates to the others in some way. Each forecast gave more information than the other and also depended on each other to give estimates on the different indicators. This information is helpful for making management decisions for the future. Making plans for future investments is in the best interest of the company 's in the world today. Team B feels as though Ford Motor Company should expand to China for several reasons. First, China has a thriving economy and Ford should do well because of the policies of the government. These policies along with the increasingly well being of the citizens of China can only help the situation. Secondly, China at present is the second largest automotive market in Asia and potentially the largest in the world within the next generation. Thirdly, this venture has potential for unimaginable growth. The expansion plans in China during the next few years also include construction of a second automotive plant as well as an engine plant. The implementation of fuel efficient vehicles is another operation which team B feels as though will have great implications for the United States as well as China and other Asian areas. Ford Motor Company is not relying on any single technology to achieve its 25 percent fuel economy goal. The fuel gains translate to a savings of about 1,700 gallons of gasoline over the lifetime of a vehicle - or about $2,400 in fuel savings for Ford customers. Ford Motor Company has improved the fuel economy of its light trucks by more than 50 percent during the past 25 years. During the past 30 years, Ford has reduced smog-forming emissions in its vehicles by 99 percent. During that same time, Ford has made a 111 percent improvement in the fuel efficiency of its cars. Ford 's goal to improve SUV fuel efficiency by 25 percent by 2005 is yet another step by the company to continue on the road to environmental leadership in the new millennium. Research studies such as the "Teen Drivers Programs" is only one of the research study programs that may eventually provide assistance with gathering information so this information can be used to help save someone 's life or at least assist with saving someone 's life. The goal of this study is not to take away a driver 's freedom but, rather, find the least disruptive way to manage potential distractions created.
Over the next few years, Ford intends to invest over $1 billion in China to expand their manufacturing operation and distribution channels and introduce new vehicles. Ford believes that the China market will become the world 's largest market in the next generation and want to be part of this new market. With interest rates, employment growth and unemployment forecasted to continue to be low and stable, expanding now is a good idea. Team B suggests that Ford concentrate on the manufacturing and distribution channels of the vehicles they already have on market. This will allow the company to build their customer base with vehicles that China is familiar with; and to receive a more profitable return from their investment. Concentrating on the manufacturing and distribution part of the expansion will allow Ford to ensure that China continues to receive quality vehicles. Once China has become familiar with Ford 's product, they will be more excited and anxious for the new models. A second operation of Ford 's is their research studies. Over the years, Ford has taken pride in offering research into safe driver programs. Last year they sponsored the Safer Teen Drivers program and the Asleep at the Wheel research. These programs helped give valuable information to drivers to make them become safer drivers and to the automotive industry to find ways to help minimize these risks. Even though economic indicators are forecasted to be stable with no drastic changes, automobile sales have struggled recently and production has been cut. With sales being sluggish and interest rates, unemployment and employment growth predicted not to decrease anytime soon, Team B suggest that Ford keep their driver research, but at a decreased rate. Ford should continue their Safer Teen Drivers program to help improve driving safety for teens and this will help parents with insurance discounts. This will also let parents know that Ford cares about the safety of their family. But Ford should not introduce any new projects until profits and sales improve for the industry. This will allow the company to use these funds to be used in other needed operations, such as marketing and promotion. The last operation to consider is fuel efficiency vehicles. With gas prices becoming an important issue for consumers today, more fuel efficient vehicles are wanted and needed. Ford was recognized last year for its automotive exhaust catalyst technology and its fumes to fuel system at its Rouge Center. These new innovations have helped keep the air clean, to generate energy from waste products and to improve vehicle performance. These systems also allowed Ford to save money on various production costs. Ford has taken steps to improve their plants and vehicles and Team B suggests they continue with this plan. Fuel efficiency and recycling are the plans for the future and the company with the improved technology will have an edge in profits. Using various forecasting sources can help management get a better understanding and estimation of the economic indicators that they use to make decisions. Each source uses data from different sectors to find the information that best suits their situation. Because there is a diversity of information pulled, the results are varied and should be used together to make the best decision needed for a company. Using the CBO, FED, MBA, and CB sources, Team B recommended the following changes for Ford:
• Concentrate on the manufacturing and distribution expansion of the vehicles they already have in the Chinese market to build their customer base and profits.
• Downsize their research programs to only the Safer Teens Driver program, until sales and profits improve.
• Continue to concentrate on energy efficient programs and fuel efficient programs, because of the continued rise of gas prices.

These changes should help Ford continue in the right direction to improve on their profits.

References
Bureau of Labor Statistics (www.bls.gov)

Congressional Budget Office (http://www.cbo.gov/)
Conference Board (http://www.conference-board.org/)
Federal Reserve (http://www.federalreserve.gov/)
Federal Reserve Bank of St. Louis (research.stlouisfed.org)

Mortgage Banker 's Association (http://www.mbaa.org/)

US Department of Commerce Economics and Statistics Administration (www.esa.doc.gov)

Appendix of Historical Data and Forecasts attached.

References: Bureau of Labor Statistics (www.bls.gov) Congressional Budget Office (http://www.cbo.gov/) Conference Board (http://www.conference-board.org/) Federal Reserve (http://www.federalreserve.gov/) Federal Reserve Bank of St. Louis (research.stlouisfed.org) Mortgage Banker 's Association (http://www.mbaa.org/) US Department of Commerce Economics and Statistics Administration (www.esa.doc.gov) Appendix of Historical Data and Forecasts attached.