Application Questions

1. Drawing on current business publications and using the opening case of the chapter as a guide, discuss how the slow economic recovery in 2011 and 2012 has affected the current strategies of firms other than those mentioned in the case.

Case for Analysis Measuring Changes in Macroeconomic Activity: Implications for Managers

Case for Analysis Measuring Changes in Macroeconomic Activity: Implications for Managers At the end of May 2012, the govemment reported that the U.S. GDP grew in the rst quarter of 2012 at an annualized rate of 1.9 percent, which was less than the 2.2 percent growth rate previously estimated. These and other data reected a view of an economy that was slowly recovering from the recession that ofcially began in December 2007 and ended in June 2009. The government reported that the number of workers applying for jobless benets increased by 10,000 in the previous week, while a regional manufacturing report for the Midwest showed slower growth in the previous month. First-quarter growth was decreased by less inventory building by companies than originally estimated, which meant that companies might replen- ish their stockpiles in the second quarter. Corporate prots increased $11.4 billion before taxes in the rst quarter of 2012 following gains of $32.5 billion and $16.8 billion in the third and fourth quarters of 2011.1 The next day the government reported that employers added only 69,000jobs (seasonally adjusted) in May 2012, the smallest increase in a year, while estimates for the two previ- ous months were also decreased from their previous values. Governments continued to reduce payrolls by 13,000 jobs in May, while the number of long-term unemployed, those out of work for six months or longer, grew from 5.1 to 5.4 million. The unemployment rate increased from 8.1 percent in April to 8.2 percent in May 2012. A separate report showed that U.S. manufacturing growth slowed in May with decreases in both production and exports. The Institute for Supply Management reported that its purchasing managers' index decreased 1.3 points in May to 53.5, with a reading above 50 indicating that the sector is expanding.2 This slow recovery in economic activity had a substantial impact on all types of rms. Managers at H. J. Heinz Co., which makes ketchup and packaged foods, spent more on 1Neil Shah and Kate Linebaugh1 \"FirstPeriod U.S. Growth Was Slower Than Thought,\" Wall Street Jountul (Oral-inc), May 31, 2012. 2.105h Mitchell, \"Grim Jobs Data Upend Debate at Fed, in Campaign," Wall Street Journal (Outing), June 1, 2012. marketing to target increasing numbers of cost-conscious cus- tomers. The company planned to expand its presence in con- venience stores, clubs, and drugstores, given slower sales in supermarkets. The company also tested smaller and cheaper package sizes to appeal to customers with reduced incomes. Joy Global Inc., a U.S. mining-equipment maker, said that the economic uncertainty could keep American mining compa- nies from completing expansion projects and that international companies might not develop new operations.3 Armstrong World Industries, a flooring manufacturer in Lancaster, PA, reported that it would hire more factory workers but only when home sales increased and nonresidential business stopped cut- ting back. The company was hurt by both cuts in school fund- ing in the United States and weaker sales in Europe.4 In mid-lune 2012, a measure of consumer sentiment from the University of Michigan and Thomson-Reuters decreased for the rst time in 10 months and hit its lowest level since December 2011. The owner of an upscale spa and salon in Arlington, Texas reported that his customers were wary even when the economic news was good, given the mixed signals on the economy over the previous years. The chief executive of Harting Inc., an Illinoisbased manufacturer of industrial connectors, noted a drop in demand for makers of machine tools used in factories around the world. U.S. business was slowing, while business in China and Europe was consid- ered to be \"non-existent." The recessions in many European countries and the possible scal cliff in the United Statesi tax increases and government spending cuts that might occur automatically as a result of the 2011 budget agreement contributed to overall uncertainty. One economist noted that the U.S. economy was in \"low-altitude orbit but threatened by uncontrolled meteors of euro crises and scal cliff that might knock it out of orbit.\"5 3Shah and Linebaugh, "First-Period U.S. Growth Was Slower Than Thought." 4Michell, \"Grim Jobs Data Upencl Debate at Fed, in Campaign." 5Ben Casselrnan and Phil lzzo, \"Recovery Slows as Global Risks Rise," Wall Street Journal (Wine), June 15, 2012