Economic indicators have a great bearing on the performance of any business. It is therefore important for any organization to analyze and interpret how these indicators will influence their organization (Barnes, 2011). This paper analyses three economic indicators that will have the greatest effect on my organization.
Consumer Price Index (CPI) is an indicator of inflation. It measures the general increase or decrease in prices of goods and services that are bought by consumers on a regular basis. This economic indicator is important because it determines the purchasing power of potential consumers. Since my organization is a salon for the middle class, an increase in the consumer price index will mean that they will increase their budgetary allocation to essential goods and services forcing them to reduce the amount of money they spend on their hair and makeup. This would translate to reduced sales to my organization. I would be most interested in the CPI for Urban Consumers (CPI-U) because the middle class dwell in cities and towns. According to the Bureau of Labor Statistics, the CPI-U increased by 0.4 during the month of April and it increased by 3.2 percent over the last 12 months. This will result in a decrease in my sales revenue (Bureau of Labor Statistics, 2011).
Consumer Credit will also have great impact on my organization. Consumer Credit is a report released on a monthly basis by Federal Reserve Board. It measures the changes in the amount of outstanding loans that are used to buy consumer goods. It covers two classes of credit; revolving credit which can be increased by creditors without contacting their bank and non-revolving credit that are normally fixed when the loan is issued. Consumer credit report is a pointer to consumer potential spending in the future. An increase in consumer credit will mean consumers will have more disposable income and will therefore be able to spend more translating to increased sales. Most middle class use credit cards to pay for their purchases. This statistics will therefore be an important indicator of my level of sales since they are my target market. According to the Federal Reserve latest reports released on 6th of May, Consumer credit increased by three percent in the month of May. Both the non-revolving and revolving credit increased by three percent during the first quarter of 2011 (Federal Reserve, 2011).This implies that my sales revenue is likely to increase.
Producer Price Index (PPI) is another economic indicator that will have an impact on my organization. PPI measures the changes in prices at producer and wholesale level. It has three main index figures; crude which measures price changes for goods such as coal, energy, crude oil and steel; intermediate which measures price changes for goods manufactured to some level but they still require further processing; and finished which measures price changes at the final stage of manufacturing. PPI affects Consumer price index therefore influencing the level of inflation. PPI also affects the costs experienced by retailers. PPI will affect the cost of goods sold of my salon business which will affect my profit margins. It will also affect my sales revenue if it changes the consumer price index. According to the Bureau of Labor Statistic the PPI of finished goods increased by 0.8 percent in the month of April and it increased by 6.8 in the last 12 months (Bureau of Labor Statistics, 2011). This will result in reduced profits margins for my business and reduced sales revenues that will result in a significant reduction in profits.
Producer Price Index (PPI) is the economic indicator that will have the greatest impact on my business operations. This is because PPI influences the consumer price index which will in turn affect sales revenue. Producer Price Index also affects profits margin if the increases in costs cannot be passed to consumers.