Comparison Between Soft Drink and Automotive Industry in United States Research Paper

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soft drink and automotive industry in United States

The consumer intensive industries whose global operations are indeed tremendously influenced by key macroeconomic indicators and more importantly, by the relationship between the linkages between these indicators, which are representations of the underlying variables from the contained data. The movement and potential movement of GDP, unemployment rate, and Inflation, along with interest rates within differing economies, the CPI and PPI, wage rates/minimum wage, the unemployment rate, and benefit packages, consumer confidence, GDP growth, inflation, and the real exchange rate, all play a critical role in how the automotive and soft drink industry address their respective markets.

U.S. GDP is the primary macroeconomic indicator that indicates aggregate economic activity for all members working nationally and internationally. Therefore, an American working in China will be counted toward the U.S. GDP and toward the Chinese Gross National Product, or GNP but not the Chinese GDP and not toward the American GNP. GDP has implications for microeconomic decision making at the firm level. As GDP indicates the level of spending within the economy, it is ostensibly a direct measure of not only consumer sentiment, but consumer means to purchase necessity goods and luxury items.

The automotive industry is of particular concern. As consumer spending declines due to inflation, which erodes the purchasing power of the consumer and causes the price of goods in the economy to rise, quantity demanded for automobiles decreases as well as the demand for luxury automobiles. Consumers decide to take public transportation or to car pool rather than purchase and operate their own auto. Inflation and the unemployment rate are causative factors in generating aggregate demand in the economy. The Phillips Curve explains the relationship between inflation and unemployment, High employment generally causes high inflation, which in turn would yield high interest rates.

According to Latruffe (2010), "The real exchange rate (RER) is a measure of international competitiveness, Brinkman (1987) explains that where the demand for currency of a competitive country is high, this strengthens the currency's exchange rate. The RER is defined as follow: RER = P (t)/p (nt) where p ( r ) is the price index of tradable commodities and p ( nt ) is the price of non-tradable ones." (Latruffe, 2010) The real exchange rate has a powerful impact on the supply chain of automotive companies, especially those automakers with rather targeted markets such as the Volvo brand.

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Consumer demand for durable goods such as automobiles do reflect the function, in part, involving inflation and interest rates. As inflation increases, as does interest rates, perhaps not immediately however, in time the interest rate will be adjusted to reflect rising inflation. The reason for increasing interest rates in the economy is to enable savings into investment vehicles and into banks for lending. As interest rates rise, the appeal of saving increases, which takes money out of the economy, also known as monetary tightening.

Unemployment, GDP, and inflation are all tied through a symbiotic relationship that is not linear nor U-shaped. The dynamic function of unemployment and GDP, are primarily driven by inflation. Does unemployment drive inflation? The notion of full employment, which is a 95% employment rate and a 5% unemployment rate as the harbinger for inflation is not unfounded.

Many governments do not want full employment because too much money in the economy will drive up prices and force rates higher. However, a quantitative ease, which is loosening monetary policy via the buying back of federal debentures. This act adds money to the economy in a global fashion which means that the USD loses purchasing power relative to competitor economies via the relationship the U.S. has with these economies through the balance of payments.

According to FOREX brokerage firms (2006), "Most vehicle manufacturers usually always report sales results on the first business day of the month; Ford does not report until the third business day. As these individual results trickle out over the news wired throughout the day, diligent economists and market analysts are busy calculating running totals and applying seasonal factors to them --….....

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