Determination of Economic Indicators for Walmart

2073 words (8 pages) Essay in Economics

08/02/20 Economics Reference this

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 Last week was a tale of Walmart and how it transformed from a 5 & 10 store to Walmart. There was a look into the financials, stocks, and forces that would affect the stores nationally and globally. A look was also taken at certain areas such as diversity, their traits and a SWOT was accomplished to see what would be good for the company to work on and make life better for their employees.

 This week; will be a dive into the world of indicators and the categories the indicators fall under. These categories and indicators will and/or can affect the Walmart Empire. Included in this portion will not only be indicators; but the operations nationally and internationally, but also internationally.

 Every quarter, the Economics and Statistics Administration (ESA) will release a listing of indicators that companies can use to gage the current state within the economy. The company can also find factors that pertain the current economy.  When looking at the indicators, it must also include looking at the attributes. It can help one understand things a little better. There are three attributes for indicators and are classified to go hand in hand with the economy, the attributes are pro-cyclical, counter cyclical and acyclical.

1. Procyclical is an “economic indicator that moves in the same direction as the economy. What this means is if the economy is doing well, then numbers are generally increasing. If there is a recession the indicator will decrease. A perfect example of this is the gross domestic product (GDP). (Moffett. 2018).

2. Countercyclical is an indicator that moves in the opposite direction of the economy. The issue with this is that generally the unemployment will go up and the economy gets worse, that is could already be. (Moffett. 2018)

3. Acyclical this attribute has no relation to the health of the economy. (Moffett. 2018)

 Along with the attributes there are also timing indicators. Just some of these indicators are Leading, Lagged and Coincident. Each of these indicators are just as important as any other.

  1. Leading economic indicators: An indicator that can change before the economy changes and this indicator are the most important because they help forecast the economy’s future direction (Cheung & Waterson, 2011). One example of this type of indicator is the stock market since it shall rise or fall before any changes to the economy occurs due to a recession or inflationary period.
  2. Lagged economic indicators: An indicator that does not change directions until a few quarters after the economy does (Cheung & Waterson, 2011). One example of this type of indicator is the unemployment rate which always rises or fall after an instance such as a recession occurs.
  3. Coincident indicators: An indicator that moves at the same time as the economy does and provides insight on the current economic conditions (Cheung & Waterson, 2011). One example of this type of indicator is the (GDP) Gross Domestic Product since it constantly moves based on whether the economy is growing or shrinking.

 As of today, 27 Nov 18, Walmart is listed as number one on the Global Fortune 500 listing. Apparently, it has been there for some time.  It is also apparent that Walmart itself is a good indicator of how well the economy is doing. As of 2018 Walmart consists of over 11,000 stores and in that approximately 4600 are in the United States. Below is a chart that shows the number of stores from 2008 -2018 (Statista, 2018).

Total number of stores worldwide from 2008-2018. Statista, 2018

 The actual economic indicators that are to follow are to be considered beneficial to Walmart and the way that business is conducted. These indicators can also be very relevant to them when it comes to making decisions; and the expansion. The major indicators are as follows-Consumer Price Index, Employment Cost Index, Employment Situation, Producer Price Index, US Import and Export and Productivity and Cost.

1. The Gross Domestic Product (GDP) is one of the primary indicators used to gauge the health of a country’s economy because it represents the total dollar value of all goods and services produced over a specific time period (Economic News, 2018). Data is shown as a comparison to the previous quarter or year. The GDP represents economic production and growth and it can largely impact everyone in the economy. Companies will look at this data if the economy is bad it would the profits would go down and it would let the company know just how disruptive this could be. Walmart can utilize the information in this report to determine the current state of the economy. The point of this is to really see what the consumer will do and if the economy will make the consumer stop purchasing products or not.

2. Employment Cost Index – The data from this indicator is received in a quarterly report from the U.S. Department of Labor, and it measures the growth of employee compensation, wages and benefits, which is based on a survey employer’s payrolls in the final month of each quarter (Economic News, 2018)The employment cost index tracks the movement in the cost of labor, including wages, fringe benefits and bonuses for employees at all levels within a company. Walmart tries to keep their labor costs and expenses under control because they employ 371,000 part time employees worldwide. Their costs have increased over the years because they have a very high turnover rate because their employee’s wages are low, and they do not pay any employee benefits. In order to help the unemployment deficit Walmart is planning to make their supply chain more sustainable in China and worldwide. The plan to boost the U.S. manufacturing for the U.S. Walmart and Sam’s Clubs as well. Walmart can use this indicator to reduce future employment costs by hiring 100,000 honorably discharged U.S. veterans, and help their part time associates find full time jobs within the company by building their careers at Walmart thus reducing employee turnover (Tolle, 2015).

3. Producer Cost Index – This indicator measures the average change over time in the selling prices received by domestic producers of goods and services, and the price changes are from the seller’s perspective (Economic News, 2018). The PCI is used as an aspect of output for the seller and as a cost factor for the buyer. This index can measure the degree of inflation because if raw materials increase in price for the producers to finish the final product it will affect their wholesale cost to the retailers. Walmart and other retailers can profit from this by charging the consumer extra for the extra unit. Consumers are paying more money for products but are getting fewer units for their money. It’s important for Walmart to analyze the producer cost for its own brand of products as they must remain appropriately priced while also cover the necessary cost increases should market inflation continue to increase future production costs (Pavlakova, Kocmanova & Kolenak, 2015).

4. Consumer Price Index – This indicator measures price average changes from the purchaser’s perspective over time in the prices paid by urban consumers for a market basket of consumer goods and services (Economic News, 2018). The CPI is the most widely used measure of inflation and can also be viewed as an indicator of the effectiveness of government economic policy. In times of inflation, consumers can feel the pinch in the value of the goods and services they bought. An example of this stems from customers going to Walmart and buying a bottle of juice, a dozen eggs and a bag of potatoes one week, and then returning to the store two weeks later getting the same items but having to pay more for those same items. With this inflation indicator, Walmart should be more aware of what it charges for its low-price business model as increases on various products can have a big impact on future. This information is critical in assuring that the company can meet future sales projects as the wrong analysis of the future led to a smaller raise in sales as expected and strong dip in company stocks.

5. U.S Import & Export Price Index – This indicator measures the change over time in the prices of goods and services purchased from abroad by U.S. residents, imports, or sold to foreign buyers by U.S. residents, exports (Economic News, 2018)The import/export price indexes, consumer price index and producer price index form the basis of three major Bureau of Labor Statistics programs that measures the changes in the prices of goods and services in the U.S. economy. The three indexes are designated as a principle economic indicator. The U.S. Imports and Exports price indexes are extremely important data for the Walmart Corporation since it’s a global company that competes domestically and internationally in the world. The data that is viewed from these indexes can tell them the prices of the goods and services that were imported from abroad and exported because they can fluctuate because of fuel and freight costs. Having this information will allow Walmart to better manage costs going forward as it continues to operate in the global market while keeping export sales high and thus improve overall net income. 

6. Retail SalesThe retail sales indicator is closely watched by economists and investors because it tracks the dollar value of merchandise sold within the retail industry (Economic News, 2018) Retail Sales is a coincident indicator because the activity reflects the current state of the economy, and it covers the prior month’s sales, which make it a timely indicator for the performance in this industry, but also the price level activity. Walmart uses the data to identify the shopper’s behavior of spending money in stores, online and on the social network. They utilized their strategies this Thanksgiving holiday by sending out their Black Friday ads early, to boost the holiday spending by consumers. Companies are in the business to increase their revenues and maximize their profits. The information that Walmart can retrieve from the data obtained from the economic indicators will enable them to analyze economic conditions of the economy, consumer spending, employment costs and sales (Huag, Nijs, Hansen & Anderson, 2015). From this information, they will be able to forecast the future for capital projects, sales projections, and investments. It is important to predict strong business analysis, as the business decisions Walmart makes will ensure them future growth opportunities and future investment opportunities.  

Overall, these six economic indicators are the most important areas concerning Walmart’s strategic as their future success depends on following the strategies outlined and detailed from each one. The indicators reveal that is will be necessary to focus more on the impact of inflation and employment costs while keeping up with their effects on retail sales and consumer purchases. This will allow Walmart to make strong future predictions compared to the ones made in recent years and thus secure investor confider and corporate profitability. Doing these strategies effectively will allow Walmart to react to changes in sales, inflation and costs in order to improve on future net sales while reducing annual costs going forward. Ultimately, Walmart should fully utilize these indicators in order to further their goal of revenue maximization in the years to come.

References:

  • Cheung, R. & Waterson, M. (March 2011). The Power of Price Indexes. Retrieved from https://www.worldeconomics.com/Journal/Papers/The%20Power%20of%20Price%20Indexes.details?ID=456
  • Pavlakova, M., Kocmanova, A., & Kolenak, J. (2015). Determination of Economic Indicators in the Context of Corporate Sustainability Performance. Business: Theory & Practice, 16(1), 15-24. doi:10.3846/btp.2015.450
  • Moffatt. M. (Feb. 2018). A beginner’s Guide to Economic Indicators. Retrieved from https://www.thoughtco.com/beginners-guide-to-economic-indicators-1145901
  • Statista. (2018). Total number of Walmart stores worldwide from 2008-2018. Retrieved from https://www.statista.com/statistics/256172/total-number-of-walmart-stores-worldwide/
  • Tolle, N. (2015). From the Courts. Employee Benefit Plan Review, 70(1), 18.
  • Walmart 2018 Annual Report. (2018). Wal-Mart Stores, Inc. Retrieved from https://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-2018_Annual-Report.pdf
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