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The Home Depot, Inc. Market Conditions

1665 words - 7 pages

When the economy is in a downturn or in a recession, economists' uses leading indicators to provide a clear representation of what economic issues businesses may face in the upcoming months. Some indicators are the unemployment rate, manufacturer's new orders for consumer and materials, number of new building permits, money supply, and the interest rate. Therefore, monitoring such indicators will help determine the future market conditions and help make the necessary adjustments in its operations to facilitate short-term and long-term goals to succeed in any economy.Faced with some very critical economic challenges, financial markets are in trouble, and prices for oil and other commodities ...view middle of the document...

53% from 2005 and 10.84% from 2007 (The Home Depot, 2009).Figure 3. US Retail Sales: Hardware stores (Economagic, 2009).With the nation in a recession, it would be in the best interest of most companies to attempt to reduce their inventories through sales in order to generate cash before trying to increase inventory once more. In fact, this appears to be the very situation in the U.S. at present time, as evidenced by the Manufacturing Woods Product chart (See Figure 4). The chart clearly displays a downward trend of keeping large amounts of lumber in stock at outlets, which cater to home repairs and improvement, which will certainly parallel similar reductions in inventory at our company of Home Depot. One might even say that such reduction of inventories is a direct result of a reduction in industrial goods produced, as shown in the Gross Value of Products graph (See Figure 5). The graph provides proof that along with the recession is at a ten year low in terms of production, which can only bring further inventory reduction about at Home Depot as it becomes more difficult to restock, if capable of generating the capital needed in that regard.Figure 4. Manufacturing: Wood Products: Materials and Supplies Inventories: Mill (Economagic, 2009).Figure 5. Industrial Production: Gross Value of Products (Economagic, 2009).As the country continues to ride this economic Tsunami, one might ask, "what kind of role the Federal Reserve plays to offset the current credit crisis?" According to the Learning Markets (2009) website, the Fed is working overtime to offset the current credit crisis. Some examples of what the Feds are doing are injecting money into the financial systems to stem the effects of the credit crisis and lowering current housing interest rates to a low of 4.73 %, effective March 23, 2009. According to Hobson (2007), lowering interest rates makes it less expensive for consumers to borrow money. Lower interest rates could in turn encourage continued spending, stimulate the economy, and help to reverse the credit crisis. In figure 6, the total credit market debt owed, displays how the current credit crisis has created a heightened debt owed by consumers.Figure 6. Mortgage companies: Financial sectors: Total credit market debt owed (Economagic, 2009).During a recession, inflation has a tendency to drop as displayed in the pink areas on the consumer price index in mid 1990 to early 1991, most of the first half of 2001, and since late 2007 to the present day (See figure 7). In relation to the unemployment data, the unemployment rate has a tendency to increase (See figure 8). When industries are performing well above the potential output, the demands increase and therefore, put pressure in rising prices, demand-pull inflation. Such inflation is usually indicated by shortage of the labor market and a shortage of provided goods (Colander, 2008). In other words, because demand is high, the rising price of goods a company supplies (see figure 7) also...

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