Portable Electric Power Tools Industry Development - Essay Example

PEPT Economic forecasts help companies to evaluate market potentials and set strategic objectives. Portable Electric Power Tools industry is affected by external and internal forces which determine market conditions and future growth or decline. The main indices used for market analysis are housing starts, expenditures for residential construction, expenditures for commercial construction, and expenditures for home repairs and improvement. All of them have some strengths and weaknesses which should be taken into account by management. Housing starts statistics is published every month by the Census Bureau of the U.S. Department of Commerce. It includes a number of new housing starts for the previous month. This economic indicator is very important for Able Corporation because it includes prefabricated and modular housing; mobile homes are also included, but are treated separately. Hotels, motels, nursing homes, dormitories, and conversions are excluded. For multiunit buildings (e.g., apartments and condominiums), construction on all units is considered to begin on the same day. The totals are adjusted to reflect the time lag between permit issuance and the actual start of construction and the number of projects that are canceled after permit issuance. The factors used to perform these scaling and adjustments are produced by surveys of sites, owners of sampled buildings, and local panels of persons knowledgeable about new construction (Rogers 1994). The main limitation of this forecast is that annual housing start statistics have varied from 2 million during a strong rebound to 850,000 during an economic downturn. As the American population increases, the average number of housing starts during a normal economic growth period also increases. Under current conditions an annual housing start rate of about 1.2 million indicates a modestly growing economy. Another economic indicator is expenditures for residential construction. Used as one of the components of the Leading Indicators Composite Index, this indicator shows market fluctuations and changes. Expenditures for residential construction is often the first industry to weaken at the onset of a new recession. Because so many sectors of the economy fluctuate with the housing market and because so many industries are dependent on residential construction, this indicator is a good general measure of overall economic growth. It is closely tied to and responsive to interest rates. Residential construction is estimated by adjusting the data reported by the F. W. Dodge Division of the McGraw-Hill Information Systems Company for additional costs not covered by the Dodge estimates, projects not covered by the survey, and geographical areas not covered (Tainer 1993). Researchers admit that in some cases, statistical results can be incomplete or inaccurate which create problems for such industries as PEPT. There are several weaknesses in the monthly figure that limit its usefulness as both a general economic indicator and an indicator of consumer activity. Residential construction tends to be volatile due to weather, fashion, and other unpredictable factors. Expenditures for commercial construction are estimated from progress reports solicited from a sample of such projects. The monthly values derived are converted to constant dollars by applying different cost indexes that have been derived for each category of construction. These indices are used in short-term cyclical and long-term growth analyses, used to estimate the current volume of the economic activity in this segment of the U.S. economy, and have an important impact on employment in the construction and building-materials industries and on additions to capital stocks of structures in the private and public sectors. Still, critics admit that there are major changes occurring in the automobile industry that diminish the significance of these periodic reports as a forecasting tool. The forth tool is expenditures for home repairs and improvement. A sample of home repairs and improvement representing all kinds of wholesale businesses is surveyed each month. The respondents provide dollar estimates of their sales and inventories. The sales and inventory data are adjusted for seasonal variation, and the sales data are also adjusted for trading-day variation. Used by business, industry, and government to assess the aggregate performance of American business because the data reflect the level of economic activity at an intermediate stage of the distributive process. The main limitations of this method are seasonality and inaccurate statistical results caused by the nature of activities. Usually, a number of home repairs and improvements are much high than reported (WEFA Group 1997). In general, inward-oriented international trade policies include exchange rates that favor low-cost imports. Also, forecast should take into account interest rates and inflations rates which affect all industries and markets. The historical data for the past five years show that expenditures for residential construction increased in 8 % and expenditures for commercial construction increased in 9 %. A small decline was in housing starts during 2003-2004, but in 2005 the market increased in 5%. "Privately-owned housing starts in January 2007 were at a seasonally adjusted annual rate of 1,408,000. This is 14.3 percent (7.1%) below the revised December estimate of 1,643,000 and is 37.8 percent (5.2%) below the January 2006 rate of 2,265,000" (US Census Bureau 2007). Expenditures for home repairs and improvement increased in 18% during he last five years. Last year, "expenditures for improvements and repairs of residential properties in the third quarter 2006 were at a seasonally adjusted annual rate of $231.0 billion. This estimate is 2.7 percent (11.3%) above the second quarter 2006 estimate of $225.0 billion" (US Census Bureau 2007). The power tool market grew in 7 % in the main segments including electric and other tools. For the past several years economic forecasts have been much derided for their apparent failure to warn of major economic changes. Considering the complexity of the American economy, the many imponderable chance events, and the fickle nature of human beings, most economic forecasts have not been that far off. If properly used in conjunction with the matrix system presented in this book, many published economic forecasts are valuable, even if the forecasts ultimately prove to be wide of the mark. When an economic forecaster begins developing the forecast, the government-supplied data are technically stale. In addition, much of this data is based on surveys and estimates subject to subsequent revisions. However, if major events during the forecast preparation period create economic turbulence, the accuracy of the forecast is obviously questionable (Tainer 1993). The data shows that economic trends are obviously an important consideration in strategic decision making. The widest use of economic forecasts is with respect to interest rates. Adequate financing is a critical aspect of business and a factor over which most businesses have least control or influence. Accordingly, anticipating interest rate trends enables a business to adjust conditions that are under its control, such as the time to request new loans, execute construction projects, make stock and bond public offerings, and refinance loans. Where a particular form of financial source is critical, historical data regarding that financial source, such as its interest rate or index, can be developed and compared to the historical matrix of primary factors. A pattern or trend that correlates to the primary factor interest rates normally is discernable. This correlation can be incorporated in the current matrix of primary factors. In general, Able Corporation should take into account different economic indices to evaluate market potential and growth opportunities for the next years. References 1. Rogers R. M. (1994). Handbook of Key Economic Indicators, Irwin Professional Pub., Burr Ridge, Ill. 2. Tainer E. M. (1993). Using Economic Indicators to Improve Investment Analysis, John Wiley & Sons, New York, pp. 169-170. 3. WEFA Group, Guide to Economic Indicators: U.S. Macroeconomic Services, WEFA Group, Bala Cynwyd, Pa., 1997. 4. US Census Bureau (2007). 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