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