External Analysis First Begins With an Assessment Essay

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External analysis first begins with an assessment of the macroeconomic conditions of both domestic and international firms. In our current economic environment domestically signals are mixed in regards to recovery or depression. Year over year, the unemployment rate has remained stagnant at historically high levels. This is important because employment rates have a direct correlation to economic prosperity and its subsequent rate of inflation. At 9.1% nearly 1 out of every 11 Americans are without work (1). This figure does not include individuals who are underemployed or working only part-time. When added these two criteria, the unemployment rate soars to above 16%. This doesn't bode well for the macroeconomic environment of the United States as nearly 70% of GDP comes from consumer spending. If consumers are without work, they subsequently will not spend as much to help bolster the economy. Consequently, more jobs can potentially be lost as more companies postpone hiring as demand for their products abate. Further aiding in the vicissitudes of consumer spending are the historically low housing prices which again have a direct correlation to economic prosperity. As this paper is being written, home prices have fallen to dangerously levels. Foreclosures are still occurring at a somewhat rapid pace although slower than its highs in 2009-2010. With home prices so low, many home owners are paying mortgages that are worth more than the house itself. The government has attempted to intervene in this market through the use of various tax breaks and assistance methods but to no avail. In essence, the government intervention has only shifted the demand for housing up, but has done little in absolute terms for the housing market. For example, individuals who intended to purchase a house anyway would, to take advantage of government tax breaks, move their home purchase up to coincide with the initial tax break. In aggregate to new homes were purchased, instead the purchase was simply moved earlier in the year. The housing market has enormous implications on the overall macroeconomic environment of any business because it affects consumer sentiments.

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As we mentioned earlier, this consumer spending comprises over 70% of all United States GDP. If consumers are fearful, then may not be willing to spend as much, thus directly affecting business performance. (PLEASE REFER TO THE APPENDIX FOR MORE DETAILED GRAPHS REGADING THE HOUSING MARKET)

On the positive end of the spectrum, companies are generating profits in the midst of our economic environment. 74% of the S&P 500 recording third quarter earning that beat analyst expectations. Further, many of these profits were generated through increase efficiency and cost cutting measures. The low interest rate environment has allowed businesses to borrow money very cheaply. These very low cost capital investments have allowed companies to invest in projects they may not have invested in during a high interest rate period. These investments in capital and equipment can potential help spur economic growth for business.

Another positive for businesses are the recent spending numbers of retail consumers. In the month of September, consumer spending rose 1.1% which was double analyst expectations. This spending number has two distinct implications for businesses. First, consumers are now more willing to spend money are goods than they were before. And second, this number may indicate that consumer sentiments regarding the economy are easing. According to the Bureau of Economic Analysis, savings from February to March of 2011 increased nearly $5 billion (2). In the first quarter of 2011, savings as percentage of disposable income increase to 5.7% from the 5.6% from the forth quarter of 2010 (3). To be fair however, the volatility index, a measure of volatility in the stock market, has been extremely high which contradicts the above observation of consumer sentiments being eased. As a stated earlier in the document, the macroeconomic data is indeed….....

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