ASSESSINGASSESSING THE THE

BUSINESS BUSINESS ENVIRONMENTENVIRONMENT

Two PerspectivesTwo Perspectives

Current and Likely Future Current and Likely Future Competitive Conditions Competitive Conditions for…for… Your Firm’s Economic Your Firm’s Economic Environment Environment

Macroeconomic Perspective/Strategic Macroeconomic Perspective/Strategic Questions: Expand into new market Questions: Expand into new market because of favorable income trend? because of favorable income trend? Stop producing because of unfavorable Stop producing because of unfavorable demographic trend?demographic trend?

Your Firm’s Industry Your Firm’s Industry (Product/Market)(Product/Market)

Microeconomic Perspective/Tactical Microeconomic Perspective/Tactical Questions: Who are my competitors? Questions: Who are my competitors? Value and price characteristics of Value and price characteristics of comparable products? Are there Under-comparable products? Are there Under-served/Unserved Market Segments?served/Unserved Market Segments?

USEFUL QUESTIONSUSEFUL QUESTIONS

Competitive Markets Require Competitive Markets Require Good Good Decisions Decisions Bad Decisions don’t go Bad Decisions don’t go UnpunishedUnpunished

Obtain and Use Relevant and Obtain and Use Relevant and Reliable Reliable InformationInformationGetting the Best Answers and Getting the Best Answers and

Information starts with Information starts with Asking the Asking the Right Questions:Right Questions:

What do you need to know?What do you need to know?How it is being measured?How it is being measured?What does it mean?What does it mean?

Macroeconomic issuesMacroeconomic issues

FOUR MEASURES TO FOLLOWFOUR MEASURES TO FOLLOWGross Domestic Product Gross Domestic Product (GDP): (GDP): National, Regional National, Regional and Localand Local

Unemployment/Employment Unemployment/Employment Rate: Rate: Job Growth, Wage Job Growth, Wage Levels and Levels and Labor SupplyLabor Supply

Inflation: Consumer Price Inflation: Consumer Price IndexesIndexes

Interest Rates: Leading Interest Rates: Leading Indicator that Indicator that is Principal is Principal Tool of Monetary PolicyTool of Monetary Policy

Notes and CommentsNotes and Comments

GROSS DOMESTIC PRODUCTGROSS DOMESTIC PRODUCT

Does Not Include International Does Not Include International OutputOutput

Difficulty of Measurement Difficulty of Measurement raises raises Reliability ConcernsReliability Concerns

Coarse-grained Measure: Coarse-grained Measure: National National Income Trends Income Trends may not reflect State may not reflect State or or Local Conditions Local Conditions

Notes and CommentsNotes and Comments

UNEMPLOYMENT RATEUNEMPLOYMENT RATEIs Trend caused by Job Growth Is Trend caused by Job Growth (Numerator) or Changing Labor (Numerator) or Changing Labor Supply (Denominator)?Supply (Denominator)?

High Unemployment Rate may High Unemployment Rate may be Politically Undesirable but be Politically Undesirable but Favor Economic DevelopmentFavor Economic Development

What was Oregon’s What was Oregon’s Unemployment Rate when Intel Unemployment Rate when Intel announced it would build its first announced it would build its first plant?plant?

Notes and CommentsNotes and Comments

INFLATION RATEINFLATION RATEWhat are the Products or What are the Products or Services Services

in the “Basket”?in the “Basket”?

What’s the Geographic What’s the Geographic Area Area covered by the covered by the Survey?Survey?

Many Types and Forms of Many Types and Forms of Consumer Price Consumer Price

IndicesIndices

Theory and applicationsTheory and applications

INTEREST RATESINTEREST RATES

Leading Indicator for Future Leading Indicator for Future Economic Economic Conditions and Conditions and Business Capital and Business Capital and Operating CostsOperating Costs

Market-derived “Rent” for Use of Market-derived “Rent” for Use of CapitalCapital

Budgeting must include Two Budgeting must include Two Components Components of Debt: (1) of Debt: (1) Interest at Rate for Interest at Rate for Borrowing Term Borrowing Term andand (2) (2) Repayment of Repayment of Principal Principal (Amount Borrowed)(Amount Borrowed)

Theory and applicationsTheory and applications

INTEREST RATESINTEREST RATESInterest Rate reflects Risks of Interest Rate reflects Risks of

Waiting to be RepaidWaiting to be Repaid

Business Risk: Likelihood Business Risk: Likelihood Borrower Borrower will Repay in Full will Repay in Full and on Timeand on Time““Bird in the Hand”: Effects Bird in the Hand”: Effects of of Inflation during Loan Inflation during Loan TermTermOpportunity Cost: What Opportunity Cost: What happens if happens if “Better Deal” “Better Deal” comes along?comes along?

Theory and applicationsTheory and applications

INTEREST RATESINTEREST RATES““Lag” between Actions Taken and Lag” between Actions Taken and Economic Impacts: about 9 MonthsEconomic Impacts: about 9 MonthsIndependence of Federal Reserve: Independence of Federal Reserve: Conflicting Actions – Raising Rates Conflicting Actions – Raising Rates may stem Inflation but dampen may stem Inflation but dampen Business BorrowingBusiness BorrowingGreenspan’s Chairmanship ending Greenspan’s Chairmanship ending January 31 after nearly 18 years; January 31 after nearly 18 years; Princeton Economics Professor (Ben Princeton Economics Professor (Ben

Bernanke) succeeding Bernanke) succeeding GreenspanGreenspan

Yield curve: Market dynamicsYield curve: Market dynamics

Black Line: June 2, Black Line: June 2, 20042004

““Normal Normal Relationships” Relationships” Longer-term Rates Longer-term Rates higher than Short-higher than Short-term Rates: term Rates: Higher Reward Higher Reward demanded for Risk demanded for Risk of Longer Termof Longer Term

Red Line: Jan. 13, Red Line: Jan. 13, 20062006

““Inverted Curve” Inverted Curve” Result of Fed Result of Fed Policies raising Policies raising Short-term rates Short-term rates and Surplus Global and Surplus Global Liquidity invested Liquidity invested in US Economyin US Economy

Information SourcesInformation Sources

The Wall Street JournalThe Wall Street Journal

Portland Business JournalPortland Business Journal

The EconomistThe Economist

Harvard Business ReviewHarvard Business Review

Oregon Labor TrendsOregon Labor Trends

www.bloomberg.comwww.bloomberg.com